Download JUN09-POINCIANA-1545-BCC 2015 Thinking of Rating Your

JUN 8 – 10, 2015
Title
Slide
Thinking of Rating Your Captive?
June 9, 2015
www.bermudacaptive.bm
Thinking of Rating Your Captive?
Speakers:
• Percy J. Núñez, CFO
– ASSA Compañía de Seguros, S. A.
– Lion Reinsurance Company Limited, Bermuda
• Andrew Hulme, ACII Chartered Insurer, Vice President,
Underwriting & Claims
– JLT Insurance Management (Bermuda) Ltd
Moderator:
• Alan Kandel, Business Development Manager
– A.M. Best
A.M. Best Company and the
Interactive Rating Process
Alan Kandel, Business Development Manager
Outline
• Introduction to A.M. Best
• About A.M. Best Ratings
• Rating methodology and key components
• The rating process
Introduction to A.M. Best
A.M. Best Overview
• Established in 1899 in the US, pioneered the concept of insurer financial
strength ratings in 1906
• Provider of ratings, financial data and news relating to insurance
industry
• Coverage of approximately 4,000 companies in >80 countries
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Rated first captives 1970s-1980s
Began rating new company formations 2001
Published separate captive methodology 2002
Published protected-cell methodology 2008
• Awarded Best Global Rating Agency at the Reactions Global Awards six
years running 2009-2014
• Only rating agency focused on the insurance industry:
– Methodologies are specific to the insurance industry
– Analysts are insurance specialists and only analyze insurance companies
– Ability to provide specific indications as to the main drivers of a rating grounded in
industry knowledge
Accredited Rating Agency
• Nationally Recognized Statistical Rating Organization
(NRSRO) designation by the U.S. Securities & Exchange
Commission (ECAI comparable)
• Registered with international regulatory agencies in the
following regions: Australia/New Zealand, European Union
• Licensed corporation in Hong Kong and Singapore
• Licensed representative office in Dubai
• Authorized Credit Rating Agency in Brazil and Mexico
About A.M. Best Ratings
Captives Rated Globally by A.M. Best
73%
17%
Breakdown by Captive Type
Breakdown by Captive Industry
Drivers of Ratings
• Validation of insurance operations
• Enhanced state, federal and country regulation
• Greater transparency
• Increasing involvement of brokers and regional expansion
• Benchmarking
• Facilitates capital raising
• Reinsurance negotiations
• Drive to improve corporate governance practices
Rating Methodology and Key Components
Rating Methodology – Key Components
Best’s Capital Model (BCAR)
• Standard for evaluating capitalization
• Model evolves over time
• Dynamic factor-based model
• Minimum capital level guidelines
• Trends are key
• Critical, but only one component
• Starting point
The Rating Process
Best’s Rating Process
• Interactive, ongoing review of company fundamentals
• Review includes wide variety of both quantitative and
qualitative information
• Primary Analyst – primary relationship manager
• Rating Committee (RC)
– Members include team leaders and rating division management
– RC reviews all rating actions
– RC employs analytical guidelines, policy and procedures
established by Credit Rating Policy Committee (CRPC)
The Interactive Rating Process
Initial Rating
Exploratory Discussions
Year Two and onwards
Compile detailed information (on-going)
Provide Data to determine fee quote
RSA Signed and returned with fee
Compile detailed information
Hold management meeting
Perform comprehensive analysis
Hold management meeting
Perform comprehensive analysis
Determine Best’s rating (via committee)
Determine Best’s rating (via committee)
Disseminate Best’s rating to the public
Disseminate Best’s rating to the public
Perform on-going surveillance & monitoring
Perform on-going surveillance & monitoring
What Kind of Information Will Be
Required?
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Annual Reports- latest five years
•
Risk Management Program
•
Audited Financial Statements for
Parent and Subsidiary
•
Investment Guidelines / Strategies
•
Reinsurance Program /
Reinsurance Contracts
•
Fronting Information
•
Other Information Requested by
A.M. Best:
•
Full Actuarial Reports
•
Corporate Structure /
Organizational Chart and History
•
Management Structure
•
Biographical Information on
Principal Officers
•
Current Insurance Structure
•
Operating Plan / Five-Year
Projections
•
Capital Management Strategies
– Estimated impact (Net/Gross) from
Catastrophe or other unusual event
– Details of changes in ownership,
management, products or
operations
– Revised projection of year-end
results
– Plans to mitigate losses and/or
correct and identified problem
The Management Meeting Agenda
• CEO Strategic Overview
• Corporate Governance
• Organizational Structure
• Capital Structure
• Underwriting
• Claims & Loss Reserving
• Reinsurance Programs
• Investments
• Financial Review & Planning
• Enterprise Risk Management
• Marketing & Business Production
Rating Process - Timing
STEP 1: Rating Engagement & Contract
(Weeks 1-2)
STEP 2: Pre-Rating Preparation
(Weeks 3-6)
STEP 3: Rating Meeting
(Weeks 6-10)
STEP 4: A.M. Best’s Analysis
(Weeks 8-12)
STEP 5: Rating Decision & Dissemination
(Weeks 11-14)
Cost and Contracts
Cost
• Approved pricing model based on:
• Size (GWP)
• Complexity
Contracts
• Rating Services Agreement
Rating Options
Pre-engagement Options
• BD is available to address boards of directors
Initial Rating Options
• Accept the Rating
• Decline the Rating
• Appeal the Rating
Annual Rating Options
• Withdraw from the process
Thank You!
Alan Kandel
Business Development Manager
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Tel:
+1 908 439 2200 x5036
Mobile: +1 908 399 6523
[email protected]
www.ambest.com
Grupo ASSA
Percy J. Núñez, CFO
Grupo ASSA
Who Are We?
Financial Highlights
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Panamanian Economic Group
Over 2,000 employees
45 years of operations
Stock publicly traded in the
Panamanian Stock Market
– One of the most important insurance
groups in Central America
Net Profit (USD Mio)
Business Segments
Investments
29%
Insurance Operations
43%
Banking
28%
Insurance Operations- ASSA Holding
Geographic Distribution
Total Premiums
Lion Reinsurance Company, Ltd.
What is Lion Re?
Incorporated under the
Laws of Bermuda and
registered as a 3A
Insurer under the
Insurance Act 1978 of
Bermuda
Wholly owned
subsidiary of ASSA
Holding Company in
Panama. Started
operations on
November 25, 2011
Assumes reinsurance
risks from its affiliates
for both P&C and
Personal Accidents and
Health
Buys retrocession cover
as part of ASSA Holding
Company and
subsidiaries’ purchase
of reinsurance
Management is
delegated to Willis
Management
(Bermuda) Limited, with
KPMG as independent
auditor
A.M. Best Financial
Strength Rating of A(Excellent) and Issuer
Credit Rating of “a”
Lion Reinsurance Company, Ltd.
Financial Information (in USD Thousand)
Dic. 2013
Dic. 2014
Gross Premiums
6,213
7,133
Net Premiums
5,630
6,890
Investment Income
79
302
Net Income
405
2,342
Total Assets
10,565
12,503
Total Liabilities
5,633
5,291
Shareholder’s
Equity
4,932
7,212
Lion Reinsurance Company, Ltd.
Central focus to senior management for reinsurance risk management and
control.
A central collection point for exposure and loss data that will help in risk
management decisions.
Budget certainty for the reinsurance costs of the Parent Company.
Capital from accumulated profit to allow the expansion of corporate retentions
for Grupo ASSA.
Transparent evidence of consideration and management on insurable risks
in line with international best practices and good corporate governance.
A way to capture profit from insurance premiums that might otherwise go to
the conventional reinsurance market.
Business Objective
Lion Reinsurance Company, Ltd.
Fire
Group
Life
Casualty
Lines of
Business
Home
Owners
Marine
Hull
Marine &
Inland
Cargo
Auto
Lion Reinsurance Company, Ltd.
Expected Benefits
File as reinsurers in
Panama, Nicaragua and
El Salvador.
Reduce capital burden
via reinsurance in Costa
Rica.
Maintain an
international guideline
for risk management on
reinsurance operations.
Lion Reinsurance Company, Ltd.
Rating Experience
• Initial rating issued in 2011.
• Corporate Guarantee from Grupo ASSA for up to US$5 million.
• ASSA Panama has 12 straight years being rated as A (Excellent), so process
Initial Rating was known.
Ongoing
Experience
• Three subsidiaries are rated, so the process is integrated into one presentation
and one meeting.
• Efficient exchange of information (they know what to look for).
• Same contact person for all three companies.
• Keep learning how to continuously improve our risk management practices.
• Consider rating of other subsidiaries, in line with our geographic expansion.
Future
Expectations
Grupo ASSA
Thank you!!
JLT Insurance Management
(Bermuda) Ltd
Andrew Hulme, ACII Chartered Insurer
Vice President, Underwriting and Claims
Thinking of rating your captive?
Captive Insurance is generally defined as:
“An insurance company that is wholly
owned and controlled by its insureds
and whose primary purpose is to
insure the risks of its owners”
So, why would a captive require a rating when it only covers
the parent’s exposure?
Thinking of rating your captive?
Parental
Divisions
(E.g. Tax)
Cedants
Captive
Peers
Regulators
Thinking of rating your captive?
Why do captives need cedants / fronting insurers?
Increased legislation
More local paper
Higher local limits
An investment grade rating can help a cedant reduce its
capital implications, thus reducing cost.
Thinking of rating your captive?
Why use your captive manager?
Help assess the need/benefit
Experienced and have report
Manage the process
Thinking of rating your captive?
Thank you!