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Rating insurers in challenging
times
Victor Nikolskiy
Associate Director
2 July 2015
Permission to reprint or distribute any content from this presentation
requires the prior written approval of Standard & Poor’s. Copyright © 2013
by Standard & Poor’s Financial Services LLC. All rights reserved.
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3
Standard & Poor’s Ratings Leadership
S&P: More Than 1.1 Million Ratings Outstanding Globally
Credit Ratings Outstanding Globally1
Global Analytical Capability by NRSROs3
Credit
Analysts
Credit Analyst
Supervisors
Total
Standard & Poor’s Ratings Services
1,436
245
1,681
Moody’s Investors Service, Inc.
1,123
149
1,272
783
309
1,092
A.M. Best Company, Inc.
84
42
126
DBRS Ltd.
93
33
126
Japan Credit Rating Agency, Ltd.
27
32
59
Morningstar
26
10
36
Kroll Bond Ratings
22
6
28
2
3
5
NRSROs
Fitch, Inc.
Egan-Jones Rating Company
1. Nationally Recognized Statistical Rating Organization (NRSRO) filing 2013 (Exhibit 8). Note: Morningstar and Kroll — 2012 filing, 2013 N/A.
2. Others include A.M. Best Company, Inc; DBRS Ltd.; Japan Credit Rating Agency, Ltd.; Morningstar; Kroll Bond Ratings; Egan-Jones Rating Company.
3. NRSRO filing 2013 (Item 7). Note: Morningstar and Kroll — 2012 filing, 2013 N/A.
4
What A Credit Rating Is And What It Is Not
What It Is
And What It Is Not
Forward-looking opinions about relative credit
risk, i.e., the creditworthiness of an entity or
its securities that:
• Absolute measures of default probability
• Strive to be globally comparable
across sectors
• Incorporate views on relative likelihood
of default that:
• Refer to the timely payment of interest and principal and,
• Are applied to entities and securities
• Investment advice, a recommendation
to purchase, sell or hold securities, or a
comment as to market price or suitability for
an investor
• A measure of liquidity or market value
• A way of defining “good” or “bad”
companies, or a direct assessment
of corporate governance
• An audit of the company or its auditors
• A guarantee of credit quality or of future
credit risk
5
What Is An Insurer Financial Strength Rating?
An insurer financial strength rating is
a forward-looking opinion about the financial security
characteristics of an insurance organization with respect to its
ability to pay under its insurance policies and contracts in
accordance with their terms.
.
6
Global Economic Outlook
Global Economic Outlook
1. The US recovery is bank on track. North American credit conditions will remain mostly stable in 2015. The U.S. economic recovery is
strengthening, and we expect this trend to continue through 2015, boosted by growing momentum in the labor and housing markets.
2. Risks to Europe's growth outlook are tilted to the downside. The Eurozone economy is entering 2015 with weak tailwinds. Geopolitical factors
could hurt growth.
3. Asia Pacific: Slower growth momentum. After a strong start, the pace of activity in China and Japan has been slowing late in 2014. And growth
in the smaller, more trade-dependent economies never really got off the ground due to the delay in the U.S. recovery.
Top Global Risks
Real GDP
1. Ongoing geopolitical concerns
2. Eurozone stagnation and its potential dip back into recession
3. The Fed's tighter monetary policy in 2015-2016
4. China's financial system vulnerabilities
5. Grexit.
7
Regional Economic Outlook
Regional Economic Outlook
1. Limited or no GDP growth in 2015 with uncertain recovery in 2016
2. Concentrated economy, dependent on commodities, vulnerable to price shocks
3. Geopolitical risks remain very high
4. Local currencies fluctuations are massive
Hydrocarbon Sector as share of GDP
%
Real GDP
(%)
25
20
15
10
5
0
-5
-10
-15
Russia
Belarus
Kazakhstan
Ukraine
Azerbaijan
Turkey
2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f
8
70
60
50
40
30
20
10
0
Regional Sovereign Ratings Score Snapshot
Institutional
Sovereign
Economic
External Liquidity
and
Fiscal Flexibility Government Debt
Foreign-Currency
Structure and and International
Governance
and Performance Burden
Ratings
Growth
investment Position
Effectiveness
Azerbaijan
BBB-/Negative/A-3
Georgia
BB-/Stable/B
Kazakhstan
BBB/Negative/A-2
Belarus
B-/Stable/B
Russia
BB+/Negative/B
Turkey
BB+/Negative/B
Ukraine
CC/Negative/C
Monetary
Flexibility
Weakness
Neutral
Strength
Strength
Strength
Weakness
Neutral
Weakness
Weakness
Neutral
Strength
Weakness
Weakness
Neutral
Neutral
Strength
Strength
Neutral
Weakness
Neutral
Weakness
Neutral
Neutral
Weakness
Weakness
Weakness
Neutral
Neutral
Strength
Neutral
Neutral
Neutral
Weakness
Strength
Neutral
Neutral
Weakness
Weakness
Weakness
Weakness
Weakness
Weakness
Determining the Ratings – Key Steps
BUSINESS
RISK
PROFILE
Industry And
Country Risk
Competitive
Position
FINANCIAL
RISK
PROFILE
Capital And
Earnings
Risk Position
Financial
Flexibility
A
n
c
h
o
r
MODIFIERS
Enterprise Risk
Management
Management
And
Governance
Holistic
Analysis
I
n
d
i
c
a
t
i
v
e
S
A
C
P
/
G
C
P
CAPS
Liquidity
Sovereign
Risk
SACP: Stand Alone Credit Profile
GCP: Group Credit Profile
S
A
C
P
/
G
C
P
SUPPORT
Group
I
F
C
S
R
R
/
Government
ICR: Issuer Credit Rating
FSR: Financial Strength Rating
Determining the Ratings – Key Steps
Anchor
Financial risk profile
Business risk
profile
Extremely Very
strong
strong
Strong
Moderately Upper
Lower Less than
Weak
strong
adequate adequate adequate
Very
weak
Extremely
weak
Excellent
aa+
aa
aa-
a+
a
a-
bbb+
bbb-
N/A
N/A
Very Strong
aa
aa-
aa- or a+
a+ or a
a
a-
bbb
bb+
bb
N/A
Strong
a+
a+ or a
a or a-
a-
a-
bbb+
bbb
bb+
bb-
b+
a or a-
a-
a-
bbb+
bbb+
bbb
bbb-
bb
bb-
b
Fair
bbb+
bbb+
bbb+ or
bbb
bbb
bbb
bbb-
bb+
bb
b+
b
Vulnerable
bbb-
bbb-
bbb-
bb+
bb+
bb+
bb
bb-
b
b
Highly vulnerable
bb-
bb-
bb-
bb-
bb-
bb-
b+
b
b
b- or lower
Satisfactory
N/A--Not applicable.
Insurers’ ratings distribution in the region
Data as of 1 July 2015, Standard and Poor’s
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