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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 – – – – 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? • 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 • • • • 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 – – – – 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!