The IRC 2015 Insurers Analysis: Annual Summary of 2014 Insurance Company Financial Statements

Transcription

1 The IRC 2015 Insurers Analysis: Annual Summary of 2014 Insurance Company Financial Statements Prepared by IRC Security Committee June 2015

2 T a b l e o f C o n t e n t s Objective Purpose and scope of the financial review Definitions Describes each analytic used to evaluate a company s financial performance Credit Insurance Companies A brief description of each insurance company along with charts showing key performance measurements and their financial rating Financial Review A side-by-side comparison of each insurance company s profit and loss statement, balance sheet, and cash flows Terminology Explanation of the acronyms and terms used in the financial statement analysis

3 Objective The purpose of this document is to provide information that clients may find useful when evaluating the financial strength of insurance companies that issue credit insurance policies in the United States. The information contained in the analysis is based on the most recent Statutory Financial Statement published by each insurer. A Statutory Financial Statement is a financial statement of an insurance company prepared in accordance with Statutory Accounting Principles. The Statutory Accounting Principles are a set of accounting rules for insurance companies set forth by the National Association of Insurance Commissioners. They are used to prepare the statutory financial statements of insurance companies. With minor state-by-state variations, they are the basis for state regulation of insurance company solvency throughout the United States. The following ten companies, which comprise the majority of the private sector credit insurance market in the United States, are included in our review: Ace, AIG, Atradius, Coface, Euler, FCIA/Great American, HCC Credit Group, QBE Insurance, XL Insurance, and Zurich. Some of these companies are part of larger global insurance operations. In addition, some of them sell other lines of insurance unrelated to credit insurance. These companies are commonly referred to as multi-line insurers. Three of the companies, Atradius, Coface and Euler, are mono-line insurers. Mono-line means they write mainly one type of insurance trade credit insurance. The financial statements of multi-line insurers reflect the performance of their entire product line. Therefore their financial results may not coincide with the performance of their credit insurance operation. The scope of this document is limited to evaluating the United States based revenue, assets and liabilities of each company. In order to obtain a comprehensive understanding of the financial security offered by the global credit insurers, clients should familiarize themselves with the financial statements and ratings of the parent organizations. Our evaluation is meant to provide a macro-level summary. Additional information is contained in the financial statements. IRC can provide the statutory financial statements for any of the companies we reviewed upon request.

4 Definitions Description This section contains a one-page summary for each insurance company. The summary page has a brief description of the company, their S&P financial rating, and six performance charts. All numbers are listed in millions. Each chart is explained below. 1. Loss Ratio - is the amount of losses incurred as a percentage of premium earned. It reflects the expenses directly attributable to losses. 2. Combined Ratio - is the amount of losses plus other underwriting expenses as a percentage of premium earned. A combined ratio greater than 100% means the insurer s expenses are greater than its premium revenue. 3. Gross Written Premium - is the amount of gross written premium revenue generated by the insurance company. 4. Net Premium Written - is the net amount of written premium revenue generated by the insurance company. Premium ceded (paid) to reinsurance companies is subtracted from gross written premium to arrive at net written premium. Insurance companies that rely more on reinsurance will have lower net written premium than ones who use less reinsurance. 5. Surplus - commonly referred to as Policyholder Surplus, is the amount of excess assets available to support losses or other payments to policyholders. This can be equated to the Net Worth of the insurer. 6. % of Gross Premium Ceded - expresses in a percentage the amount of reinsurance premium being paid as a percentage of gross premiums. A higher percentage means the insurance company is relying to a greater extent on reinsurance.

5 ACE Global Markets Political Risk and Credit is part of the ACE Group. Their U.S. operation is headquartered in New York City. ACE s Trade Credit insurance division focuses on excess-of-loss multi-buyer programs, top-buyer programs, multi-country and single-buyer risk programs for domestic and export receivables exposures. Structured Trade Credit products are also available with coverage periods up to 5 years. Political Risk insurance is another significant area of specialization for ACE. The ACE Group is one of the world's leading global commercial property and casualty insurance and reinsurance organizations. ACE has operations in more than 50 countries and conducts business with clients from over 140 countries. Their policies are issued by: Ace American Insurance Company (Multi-line) Financial Rating: S&P AA

6 In some states Ace s policies are issued by: Ace Property & Casualty Insurance Company, (Multi-line) Financial Rating: S&P AA

7 Atradius N.V. (Atradius) is headquartered in Amsterdam and is one of the largest credit insurers in the world with 160 offices in 40 countries. Atradius U.S. operation, Atradius Trade Credit Insurance, Inc., is based in Baltimore which offers single and multi-buyer domestic and export credit insurance. Atradius offers other specialized products, such as pre-export commodity finance coverage and highly tailored credit cover to facilitate increased funding through asset-based securitization facilities. Their policies are issued by: Atradius Trade Credit Insurance, Inc. (Mono-line) Financial Rating: S&P N/A

8 American International Group, Inc. (AIG) is headquartered in New York City. AIG focuses primarily on writing coverage for large corporates with well-developed credit procedures, substantial exposures, and a good spread of risk. AIG provides political risk coverage of cross-border equity investments. AIG s trade credit insurance policies are issued by: National Union Fire Insurance Company of Pittsburgh, Pennsylvania (Multi-line) Financial Rating: S&P A+

9 In some states, AIG insurance policies are issued by: The Insurance Company of the State of Pennsylvania Financial Rating: S&P A+ 100% 75% 87% Loss Ratio 77% 150% 125% Combined Ratio 115% 111% 50% 100% 75% 25% 0% N/A % 25% 0% N/A

10 Coface is headquartered in Paris, France. Its U.S. operation is based in East Windsor, New Jersey. Coface provides export and domestic multi-buyer cover, and also offers single-buyer policies. Coface offers company credit opinions and probability of default scores through line of information products, which are based on the credit underwriting expertise of Coface underwriters around the world. Coface policies are written by: Coface North America Insurance Company (Mono-line) Financial Rating: S&P N/A

11 Euler Hermes North America (Euler) is owned by Euler Hermes with headquarters in Paris. Euler has a presence in six continents and 51 countries. Euler Hermes is ultimately owned by German insurer Allianz. Euler maintains a proprietary database that includes access to EULER Group s worldwide sources of credit information. In the United States, Euler is headquartered in Baltimore. Euler s focus is short-term multi-buyer credit insurance. They also provide Excess of Loss, transactional cover, debt collection and receivables outsourcing services. Their policies are issued by: Euler Hermes North America (Mono-line) Financial Rating: S&P AA-

12 FCIA Management Company, Inc. (FCIA) is based in New York City and is owned by the Great American Insurance Company, which is based in Cincinnati. FCIA provides comprehensive short-term domestic and export credit insurance on a single-buyer and multibuyer basis. FCIA also provides medium-term (up to three or five years) export credit insurance on a single-buyer basis. It has been writing credit insurance since 1962; until 1992, FCIA acted as the principal commercial risk underwriters for all Ex-Im Bank insurance programs. FCIA s policies are issued by: Great American Insurance Company (Multi-line) Financial Rating: S&P A+

13 HCC Credit Group is based in New York City with branch offices in London, England and Melville, NY. It offers short and mediumterm single and multi-buyer cover. In the U.S. market, HCC Credit Group represents Houston Casualty Company and U.S. Specialty Insurance Company, which are both wholly owned subsidiaries of HCC Insurance Holdings. HCC Credit s multi-buyer policies are tailored to companies with established and experienced credit departments. The figures below are for Houston Casualty Company ( HC ), the principal insurance subsidiary of HCC Insurance Holdings. HC is a Texas-domiciled property and casualty insurance company operating on a surplus basis in the United States, except in Texas where it operates as an admitted carrier. Houston Casualty Company (Multi-line) Financial Rating: S&P AA

14 In some states and for certain product lines, HCC Credit Group s policies are issued by U.S. Specialty Insurance Company ( USSIC ). USSIC is a Texas-domiciled property and casualty insurance company insurance company operating on an admitted basis throughout the United States. U.S. Specialty Company (Multi-line) Financial Rating: S&P AA

15 QBE Insurance Group (QBE) is Australia's largest international general insurance & reinsurance group, and one of the top 25 insurers and reinsurers worldwide. QBE commenced operations in the U.S. in The US operation, QBE Americas, is headquartered in New York City. QBE offers multi-buyer and single-buyer policies. Their multi-buyer policies are tailored to companies with established and experienced credit departments. In 2008, QBE purchased Exporters Insurance Company (EIC). QBE now has the ability to insure medium-term (longer than 1 year) repayment terms. QBE policies are issued by: QBE Insurance Corporation (Multi-line) Financial Rating: S&P A+

16 XL Insurance, part of the XL Group, has been writing trade credit and political risk coverage since Most structured trade and political risk policies in the U.S. are underwritten by Indian Harbor Insurance Company which is a U.S. based, non-admitted, excess and surplus lines carrier that also offers a wide array of property and casualty products. Indian Harbor Insurance Company (Multi-Line) Financial Rating: S&P A+

17 XL s short-term trade receivable insurance policies are issued by XL Specialty Insurance Company on an admitted basis throughout the U.S. XL Specialty Insurance Company (Multi-Line) Financial Rating: S&P A+

18 Zurich Surety, Credit & Political Risk (Zurich), is based in Washington D.C. with offices in Barcelona, Beijing, Boulder, Frankfurt, Hong Kong, London, Miami, New York, Paris, Singapore, Sydney, Tokyo and Zurich. It is owned by the Zurich Group of Switzerland. Zurich writes political risk and comprehensive insurance to cover investments, loans, exports and project financing. Zurich offers political risk insurance up to fifteen years, and comprehensive short-term and medium-term cover for terms up to seven years. Most of Zurich s trade credit & political risk insurance policies are issued by Steadfast Insurance Company of Schaumburg, Illinois. Steadfast Insurance Company (Multi-line) Financial Rating: S&P AA- Steadfast cedes 100% of its premium written to reinsurers. Steadfast cedes 100% of its premium written to reinsurers. Steadfast cedes 100% of its premium written to reinsurers.

19 In a few states Zurich s policies are issued by Zurich American Insurance Company. Zurich American Insurance Company (Multi-line) Financial Rating: S&P AA-

20 Financial Review 2014 In millions Multi-Line Carriers Mono-Line Carriers Insurance Company ACE I ACE II AIG I AIG II FCIA HCC I HCC II QBE XL I XL II Zurich I Zurich II Atradius Coface Euler Full Name Ace American Ace Prop & Cas National Union Ins Co of PA Great American Houston Casualty S & P Rating as of May 20, 2014 AA AA A+ A+ A+ AA AA A+ A+ A+ AA- AA- N/A N/A AA- Income Statement Gross Written Premium 10,128 7,424 26, , , ,391 1,259 11, Net Written Premium 1,657 1,567 5,617 (370) 2, , Premium Earned 1,634 1,546 5, , , Losses 1, , , Loss Adjustment Expense Other Underwriting Expense ,466 (68) Net Underwriting Gain/Loss (376) (62) (7) Net Investment Gain/Loss Dividends Paid Net Income After Tax , Balance Sheet Bonds 6,121 4,644 14, ,610 1,493 1, , Stocks 1, ,268 1, , Cash/Short Term Investments (122) Total Cash and Invested Assets 8,790 5,739 22, ,476 2,809 1,756 1, , A/R Reinsurers A/R Parent Co Total Assets 12,151 7,361 26, ,812 2,960 1,891 2, , Payable Parent Co. 1, Ceded Reins. Premium Other Liabilities, incl. Losses 7,595 4,855 18, , ,255 1, , Total Liabilities 9,158 5,296 19, ,398 1,068 1,314 1, , Policy Holder Surplus 2,993 2,064 6, ,414 1, , Policy Holder Surplus 2,677 1,920 5, ,403 1, , U.S. Specialty QBE Ins Corp Indian Harbor XL Specialty Steadfast Zurich American Atradius Trade Credit Coface NA Euler Hermes NA

21 ACE I ACE II AIG I AIG II FCIA HCC I HCC II QBE XL I XL II Zurich I Zurich II Atradius Coface Euler Cash Flow Net Premiums Collected 1,629 1,539 5, , (22) 4, Investment & Other Income Total Revenue 1,965 1,739 6, , (14) 5, Loss Payments 704 1,068 3, (72) 2, Commissions, Dividends, Taxes , , , Net Cash Collected from Operations (1) Investment Proceeds 2, ,083 1, , , Investments Made 2, , , , , Net Cash from Investments (54) 102 (263) 1,482 (270) (104) 25 9 (3) 444 (11) (34) (29) Other Cash (447) 65 (63) 1,739 (196) (271) (115) (77) (4) (10) (52) (697) (1) (9) 3 Net Change in Cash for Period (96) (210) (12) (3) 5 (130) 25 (3) (12) (38) (2) Ending Cash (122) 5, Ratios Loss Ratio 78% 78% 80% - 59% 51% 47% 69% 60% 61% 0% 78% 41% 24% 34% Expense Ratio 19% 19% 26% 18% 33% 27% 33% 32% 36% 36% 0% 19% 43% 26% 38% Combined Ratio 96% 96% 107% - 93% 80% 79% 101% 96% 97% 0% 98% 94% 50% 74% Return on Equity 8% 6% 9% 73% 16% 11% 23% 1% 7% 6% 2% 12% 3% 26% 17% Return on Assets 2% 2% 2% 29% 4% 7% 7% 0% 1% 2% 2% 3% 2% 12% 6% Return on Revenue (Gross) 2% 2% 2% 19% 6% 39% 22% 0% 0% 1% 1% 9% 2% 15% 8% Return on Revenue (Net) 15% 7% 10% -24% 10% 64% 32% 1% 12% 12% 0% 21% 10% 35% 27% Reinsurance Percentage 84% 79% 79% 179% 36% 39% 31% 78% 97% 95% 100% 58% 75% 56% 71% Quick Liquidity Ratio 87% 100% 77% 160% 87% 238% 131% 58% 117% 128% 435% 95% 150% 134% 95% Liquidity Ratio 96% 108% 115% 160% 102% 263% 134% 79% 117% 131% 474% 111% 150% 134% 104% Surplus Change 12% 8% 14% -84% 1% -1% -1% 0% -2% -9% 1% 3% -2% 11% 4%

22 Income Statement Insurance Company Domicile Organization Type Company Rating Gross Premium Written Net Written Premium Premium Earned Losses Loss Adjustment Expense Other Underwriting Expense Net Underwriting Gain Net Investment Gain/Loss Dividends Paid Net Income After Tax Balance Sheet Bonds Stocks Cash/Short-Term A/R Reinsurers A/R Parent Co. Total Assets Payable Parent Co. Ceded Reinsurance Premium Other Liabilities Including Losses Total Liabilities Policyholder Surplus Cash Flow Net Premiums Collected Investment Income Total Revenue Loss Payment Commissions, Dividend & Taxes Net Cash From Operations Investment Proceeds Investments Made Cash From Investments Other Cash Net Cash For Period Ending Cash Glossary Description The company insuring the accounts receivable State in which the insurance company is located Stock-owned by shareholders; Mutual-owned by policyholders Standard and Poor s rating of the insurance company Gross premiums written Gross premiums written less reinsurance premiums written Gross premium earned for the period Gross losses incurred Expenses related to the processing of claims General, administrative and selling expenses Amount gained after absorbing losses and paying underwriting expenses Amount gained or lost on investments Dividends disbursed to shareholders Income after taxes are paid Description Assets invested in bonds Assets invested in stocks Cash and other short-term liquid assets Accounts receivable due from reinsurers Accounts receivable due from the parent company of the insurance company Total assets of the insurer Amounts owed to the parent company of the insurance company Premium owed to the reinsurance companies All other amounts owed including for losses Total amounts owed by the insurance company This is comparable to the Net Value or Net Worth of the Insurer Description Premium collected net of reinsurance payments Income derived from investments Investment Income plus Net Premium Collected Amounts paid to indemnify Losses Distribution costs, dividend payments and taxes Cash generated from insurance operations Cash generated by selling investments Cash invested Cash generated from selling investments minus cash invested Miscellaneous cash outlays Cash generated for the reporting period Total cash available at the end of the reporting period Financial Ratios Description (Net Losses + Loss Adjustment Expense)/Net Premium Earned. This ratio reflects the amount of losses per premium dollar being Loss Ratio incurred by the insurer. Expense Ratio Other Underwriting Expense/Net Written Premium. This ratio represents the administrative costs per premium dollar. (Losses + Loss Adjustment Expense + Other Underwriting Expense)/Premium Earned. This is the total expense per premium Combined Ratio dollar being incurred by the insurer. Return of Equity Net Income After Tax/Policyholder Surplus. Return on equity capital of the insurer. Return on Assets Net Income After Tax/Total Assets. Return on total assets of the insurer. Return on Revenue (Gross) Net Income After Tax/Gross Written Premium + Investment Gain or Loss. Return on Revenue (Net) Net Income After Tax/Net Written Premium + Investment Gain or Loss. Reinsurance Percentage Percentage of Gross Written Premium paid to reinsurers. Quick Liquidity Ratio Short-term Investments, cash, bonds, (.8)stocks/Total Liabilities Overall Liquidity Ratio Total Assets/Total Liabilities Surplus Change Change in Policyholder Surplus from the prior reporting period. Source: Staturtory financial statement of each insurance company. Disclaimer: This report is provided as a convenience to our clients. Every attempt is made to ensure the accuracy of the information in the document. However, IRC and ICBA assume no legal liability or responsibility for the accuracy, completeness, or usefulness of the information. To obtain further and more detailed information clients should review the annual financial statements of each insurer. S&P ratings are subject to change and can vary over time. The company ratings are a financial strength rating of Standard and Poor s. They are based on the current opinion of 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. Standard and Poor s also offers other ratings for insurance companies, however only financial strength ratings were.

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