Dagong Europe Proposed Criteria for Rating Insurance Companies 31 July 2013

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Dagong Europe Proposed Criteria for Rating Insurance Companies 31 July 2013"

Transcription

1 Dagong Europe Proposed Criteria for Rating Insurance Companies 31 July 2013 Request for Comment Carola Saldías Senior Director Financial Institutions Analytical Team Christina Sterr Director Financial Institutions Analytical Team Fabio Boninsegni Senior Credit Officer DAGONG EUROPE -

2 This request for comment details Dagong Europe s Proposed Criteria for Rating Insurance Companies. Market participants are invited to review and comment on the proposed criteria to: by 29 August 2013 TABLE OF CONTENTS I II III SCOPE SUMMARY OF CRITERIA FOR RATING INSURANCE COMPANIES INDIVIDUAL FINANCIAL STRENGTH ASSESSMENT (IFSA) Operation Environment Corporate Governance and Development Strategy Sustainability and Competition Risk Management Financial Analysis Stress Testing and Scenario Analysis IV V EXTERNAL SUPPORT ASSESSMENT (ESA) OTHER CONSIDERATIONS FOR INSURANCE COMPANIES CREDIT RATINGS 1

3 I SCOPE Dagong Europe has developed a comprehensive set of criteria for the process of assigning Credit Ratings to Insurance companies. It is applicable for Life- and Non-Life insurance companies, as well as reinsurance, other insurance operations (health, mortgage, global credit and trade, title) and insurance companies with mixed insurance operations. Procedures, criteria and models applied by Dagong Europe in its credit rating process are developed in agreement with the Dagong Europe Sector Heads and Credit Officers and approved by the Committee for Credit Policies. II SUMMARY Dagong Europe has developed a comprehensive Insurance Rating Criteria. The analysis follows a flow from macro to micro level based on specific characteristics that apply to any insurance company. The analytical approach followed by Dagong Europe when assigning Credit Ratings to Insurance companies, is based on the framework applied for Financial Institutions ( Dagong Europe Proposed Criteria for Rating Financial Institutions published 18 June 2013). However, the Criteria take into account the peculiarities of the insurance industry, in terms of financial performance, industry dynamics and competitiveness. The framework, therefore, is based on the Financial Institutions Rating Criteria but prepared with the specifications of insurance companies concerning Operation Environment, Sustainability and Competition, Risk Management and Financial Analysis, allowing a broader comparison tool in terms of credit analysis within companies that belong to the financial industry. Using the Financial Institutions Criteria for Rating Financial Institutions as a base, Dagong Europe applies the same overall framework for insurance companies. The application of the Financial Institutions analytical framework provides a thorough comparison of the Credit Ratings among insurance companies with different business models, and also with other financial institutions (mostly banks). For Dagong Europe, this is a key aspect to highlight the comparability of Credit Ratings within the financial industry. Accordingly, the Credit Rating assigned by Dagong Europe to an insurance company comprises its ability to service obligations in relation to policyholders and debt holders. 2

4 Exhibit 1 Components of Dagong Europe s Credit Ratings for Insurance companies Individual Financial Strength Assessment (IFSA) External Support Assessment (ESA) CREDIT RATING Source: Dagong Europe The Individual Financial Strength Assessment ( IFSA ) The IFSA represents Dagong Europe s opinion on the standalone and individual financial health of an entity. This opinion represents Dagong Europe s analytical view on the financial strength based on its solvency fundamentals and business model. The IFSA does not under any circumstance represent a credit rating, or a default indication of the debt issued by the entity. Nevertheless, Dagong Europe s opinion on the IFSA is helpful for direct comparisons between entities, and is the main driver of the Credit Rating. The IFSA is used within all kinds of financial institutions (insurance companies, banks, nonbanking financial institutions, consumer finance, etc), offering the market a thorough and useful tool to compare the financial strength of any entity, independently of its business model, nature or location. The External Support Assessment ( ESA ) The ESA represents Dagong Europe s view on the likelihood of the external support (from a parent entity or other eventual support providers) that an insurance company could receive, to prevent default when in financial distress. When insurance companies find themselves in extremely depressed conditions -- mainly when the ability to fulfill policyholders obligations or market debt is deteriorating, or a significant reduction in capital or reserves that could weakening the financial profile -- external support is crucial in overcoming the financial stress or rebuilding market confidence. The opinion on external support completes the overall analysis when assessing the likelihood of an insurance company s default, following a more restricted approach of the eventual support providers when compared with other financial institutions (mostly banks). The sections that comprise the analytical framework applied by Dagong Europe for assigning the IFSA and ESA for insurance companies are detailed in the chart below: 3

5 Exhibit 2 Credit Rating CREDIT RATING Individual Financial Strength Assessment (IFSA) Operation Environment Corporate Governance & Development Strategy External Support Assessment (ESA) External Support Provider Level of Support Sustainability and Competition Risk Management Financial Analysis Source: Dagong Europe III INDIVIDUAL FINANCIAL STRENGTH ASSESSMENT (IFSA) The IFSA reflects Dagong Europe s evaluation of the stand-alone, intrinsic financial health of an entity based solely on its financial fundamentals, business model and operating environment. The IFSA is directly comparable with other entities within the financial industry since it does not include any adjustments related to external support. The IFSA criteria applied by Dagong Europe to insurance companies varies between Life and Non-Life insurers. Decisions on applying the appropriate criteria (Life or Non-life) for insurance companies with mixed business models reflect the dominance of a respective segment. However, in cases of highly diversified and equally relevant business models, the combination of factors that represent each sector is used. In addition, Dagong Europe assesses whether the business nature of the entity is accurately represented by non-adjusted metrics. If this is not the case, adjustments are made to reflect the financial profile and risks that otherwise may not be identified (e.g. if off-balance sheet accounts are relevant for analytical purposes). It is worth noting that any adjustment, if necessary, is clearly highlighted and disclosed for analytical and benchmark purposes. The IFSA is the first stage in Dagong Europe s process of assigning a Credit Rating. It is worth noting that the IFSA does not, under any circumstance, represent an ultimate indication of default risk or severity of loss. The higher the IFSA score, the stronger the entity s stand-alone financial health and therefore, greater ability to fulfill its financial commitments. 4

6 The IFSA is presented in lowercase letters to distinguish it from the final Credit Rating, which is presented in uppercase letters. The IFSA uses the scale detailed below. Except the IFSA of 'aaa' and 'cc/c/d', each IFSA can be modified by adding a plus or a minus, expressed as a (+) or (-) respectively, indicating a higher or a lower IFSA within each category. Exhibit 3: Definition of IFSA - Individual Financial Strength Assessment aaa aa a bbb bb aaa denotes the highest score of the individual financial strength assessment, with excellent and strong indicators in all the factors that comprise the IFSA. Represents entities with solid and recognised successful business models supported by an excellent risk management framework. A sound capital base to support organic growth and to face expected and any unexpected underwriting risk is also available. Entities are typically located in stable economic environments with highly efficient and predictable legal and regulatory frameworks. 'aa' denotes very strong individual financial strength, with a combination of excellent and sound indicators within the factors that comprise the IFSA. Represented by entities with solid and recognised successful business models supported by a very good underwriting risk framework. A sound capital base to support organic growth and to face expected and unexpected underwriting risk is available. Entities in this category are typically located in stable economic environments with highly efficient and predictable legal and regulatory frameworks. 'a' denotes a strong individual financial strength assessment with a mixed combination of good indicators within the factors that compose the IFSA. It represents entities with stable business models supported by good underwriting risk frameworks. A healthy capital base to support organic growth is available with a comfortable base to face expected and underwriting risk. Entities are typically located in stable economic environments with efficient and fairly predictable legal and regulatory frameworks. 'bbb' denotes a satisfactory individual financial strength assessment with a combination of satisfactory performance indicators within the factors. It represents entities with specific or stable business models supported by an adequate but still requiring improvement, management of underwriting risk. An adequate capital base to support organic growth is available; strengthening of capital ratios and reserves is expected. Entities would be typically located in economic environments with some level of stability however some deficiencies in the level of development of legal and regulatory environment exist. 'bb' denotes a moderate individual financial strength assessment with a combination of moderate indicators within the factors that compose the IFSA. Represents entities with business models that face tough competition and with underwriting risk models that require improvement. The capital base to support organic growth and to face expected and unexpected risks is highly sensible and should be strengthened to provide more stability. Entities are typically located in economic environments with deficiencies in the level of development of legal and regulatory frameworks. 5

7 b ccc/cc/c and d 'b' denotes a weak individual financial strength assessment with a combination of weak performance indicators within the factors that compose the IFSA. Represents entities with limited business models that face tough competition and with basic risk management frameworks that requires material improvement. The capital base does not support organic growth and does not provide financial stability to face unexpected underwriting risks. Entities are typically located in economic environments with evident deficiencies in the level of development of legal and regulatory aspects and with unpredictable behavior patterns. 'ccc/cc/c/d' denotes a very weak individual financial strength assessment, with a combination of poor and very weak indicators within the factors that compose the IFSA. Represented by entities with limited business models that face tough competition and with extremely deficient underwriting risk management. The capital base and reserves are weak and should be increased. Entities would be typically located in economic environments with evident deficiencies in the level of development of legal and regulatory aspects and also with extremely unpredictable regulatory behavior driven by individual objectives. Source: Dagong Europe The IFSA is the result of a five key analytical factors matrix with specific weights, which Dagong Europe believes represent the main drivers that lead an insurance company s intrinsic financial profile. For details about the weights applied to the five specific factors, please refer to the tables at the end of Section III of this document. The basis for the financial analysis is the combination of a 3-year period financial database (to avoid misleading interpretation of cyclical performance that could trigger a biased analytical conclusion) and most recent financial data available to identify trends. It should be noted that Dagong Europe uses the IFSA in combination with the ESA to determine the Credit Rating. It represents the foundation of the rating committee process and should be carefully interpreted by the market. The five key factors include both qualitative and quantitative guidelines. Qualitative factors and sub-factors are expressed on a seven-scale opinion, ( Excellent, Very Strong, Strong, Satisfactory, Modest, Weak and Very Weak ). Quantitative factors are compared to a range of possible outcomes studied, analysed and tested by Dagong Europe in order to determine a continuous scale that compares the soundness or weakness of each of them. The factors and sub-factors are described in the chart below: 6

8 Exhibit 4: IFSA Sub-Factors Individual Financial Strength Assessment (IFSA) Operation Environment Corporate Governance & Development Strategy Sustainability and Competition Risk Management Financial Analysis Regulatory Environment Corporate Governance Competitive Position Underwriting / Investment Strength Capital Local Macroeconomy Development Strategy Size Product Risk Reserves Legal Environment Diversification Product Risk Management Liquidity Profitability Source: Dagong Europe A Operation Environment The rating assessment of any financial institution, therefore, of any insurance company starts with the analysis of the operation environment. The international and domestic macroeconomic climate is deemed to be crucial to the financial profile of individual entities, setting the starting point for any fundamental analysis and credit risk evaluation. Dagong Europe includes three sub-factors within the Operation Environment which group the key elements that determine the economic, legal and regulatory environment where an insurer sets and develops its business model. In case of geographically diversified businesses, the sub-factors are computed as the weighted average of all the countries in which the entity keeps relevant businesses. For Dagong Europe, weightings are assigned on the basis of the company s annual net premiums written (or assets, depending on disclosure) generated per country. 7

9 A1 Regulatory Environment The regulatory environment provides the base in which an entity develops and sets its business practices. A sound and transparent regulatory environment, with a framework set by a fully independent and credible regulator that shows evidence of empowerment and has control over entities with best practices, promotes a healthy industry environment with adequate incentives. The regulatory environment ranges from multilateral agreements (e.g. Solvency II) to customised regulations based on country specifications (mainly concerning capital adequacy levels, minimum reserve requirements or specific reporting standards). For Dagong Europe, it is expected that the main objective of the regulator is to promote a healthy insurance industry framework. Following on from this, Dagong Europe expects that the regulatory framework should be aligned with the best interests of market participants. Advances in terms of promoting best practices and anticipating upcoming regulations from different regulatory authorities is highly valued and assessed accordingly. It is worth noting that regulatory homogeneity in the insurance industry in terms of reporting is also addressed and analised. The different levels of information disclosure required by country specific regulators, represents a challenge for comparison purposes and therefore should be addressed carefully. For insurers that have operations in more than one country where the size of operations in other countries are relevant (primarily in terms of gross premiums, net premiums written or, depending on disclosure earnings contribution or assets), the analysis includes an assessment of the secondary country s regulatory framework as well. The Regulatory Environment is determined by a seven-point qualitative opinion from Excellent to Very Weak for both Life and Non-Life insurers. A2 Local and Macro-Economy The importance of local and macro-economic conditions, is highly correlated to the performance of the insurance industry. Due to the nature of the insurance industry, the state of the local and macro economy has direct effects on the demand for insurance services and thus the ability of market players to generate earnings. Since insurance products are very diverse in its origin, the demand for more specific and sophisticated products is highly dependent on the country s development stage and the penetration level of insurance products within its population. For example, it is known that in more mature markets, the offer of very specific and more specialilsed insurance products is larger, e.g. specific health insurance, income insurance etc. On the other hand, economies highly exposed to natural disasters (e.g. floods, earthquakes, hurricanes etc.) are very specific in terms of the minimum insurance coverage required. In those cases, the analysis of the local and macro economy and the level of supply and demand of insurance products need to be addressed. Hence, the analysis and assessment of a country s trend in economic growth is a key driver to understand its demand for insurance services and further, to interpret an insurance company s expected performance. 8

10 For those insurance companies that develop global business models, such as life reinsurance, trade credit insurance, some property and casualty (P&C) and marine protection and indemnity (P&I), the macro analysis focuses on a weighted average of all the countries in which the entity keeps relevant businesses. Dagong Europe evaluates the stage of the economy through the following macro indicators: GDP / capita (based on IMF data, last full year or most recent data related to analysed results), which represents the absolute market attractiveness in terms of economic wealth and potential, using a weighted average if there is presence of business operations in different countries. Industry development (qualitative judgment), which represents the risks faced by an entity on both the stage of development of the insurance industry in a specific country and the stage of its own business model. Dagong Europe focuses its industry development analysis amongst others on the following drivers: growth potential of insurance products, supply and demand equilibrium of insurance products, barriers to entry and exit for insurance companies and penetration of insurance products into the population. Unemployment rate (based on IMF data, last full year or most recent data related to analysed results), which indicates the prospective economy strength in terms of potential purchasing power and size of the population with real disposable income. Sovereign risks are incorporated as a reference factor within the local and macro economy analysis. However, it does not automatically affect or drive the operation environment evaluation. Dagong Europe attemps to identify macro factors,which composed the sovereign environment, that are highly correlated with the business of a specific financial institution and isolate those that do not affect the entity s financial profile in the long-term. A3 Legal Environment The Legal Environment is an important factor in setting the operational framework of insurance companies. A well-established and proven legal framework, with clear legal claim procedures as well as the ability to enforce re-insurance contracts is vital to provide a smooth operation environment. In addition, situations when a country s legal framework requires high minimum insurance coverage for specific products (mostly health insurance and P&C) and when the base costs and ability to manage underwriting expenditures is less flexible, should be s highlighted as a legal constrain within the analysis. Dagong Europe evaluates and compares the strengths and weaknesses of each country s legal framework with the aforementioned characteristics in terms of minimum product standards and operation environment. The score on Legal Environment is determined by a seven-point scale based on a qualitative opinion ranging from Excellent to Very Weak. 9

11 B Corporate Governance and Development Strategy B1 Corporate Governance The assessment of an insurance company s Corporate Governance framework follows the same assessment applied for Financial Institutions ( Dagong Europe Proposed Criteria for Rating Financial Institutions ). Dagong Europe recognises that Corporate Governance is an important factor in determining the quality of management, the fulfillment and predictability of the strategic plan and long-term performance. It therefore affects the long-term financial stability and sustainability of an insurance company. Since the approach to Corporate Governance can be very different depending on the ownership structure of an entity, the qualitative judgment made by Dagong Europe takes into account also the complexity of the ownership structure. The assessment includes an opinion on how the insurance company manages its relationship with all stakeholders including shareholders, financial markets, regulatory entities, employees, policyholders and any other relevant parties. A review of the own vision, mission, definition, procedures, internal policies and business practices is crucial to understanding and identifying potential risks from lack of governance or management weaknesses. Dagong Europe s opinion on Corporate Governance is defined as a qualitative score that is Neutral, Weak or Very Weak. The rationale behind this qualitative opinion is based on the fact that Corporate Governance should be a minimum standard of best practices in every insurance company. Dagong Europe gives no credit to strong Corporate Governance frameworks, since it should represent a standard level of professionalism and responsibility. However, there is a negative stance for those frameworks that in Dagong Europe s opinion are not complying with minimum industry standards or best practices; therefore, represent a flaw that could lead to potential governance risks. A comprehensive list of questions and topics that are usually discussed when evaluating Corporate Governance are: Composition of the board of directors/supervisory board and background. Concentration of power of decision making processes. How are strategy and objectives communicated within the organisation and how aligned are they within the organisational structure. Is risk tolerance appetite clearly determined and communicated? How is the risk management function structured and managed? How experienced is the senior management? Are internal procedures and practices clearly defined, communicated and applied? What has been the outcome of the last inspection made by the regulator? Complexity of the ownership structure. Structure of the management compensation packages. Are the incentives for management compensation aligned with a sustainable long-term perspective of the institution? Quality of reporting, controls and monitoring of the board to management level. 10

12 Detailed explanation for any legal or regulatory dispute. Any compliance breach, exception, or fine from a regulatory institution. As part of the Corporate Governance assessment, Dagong Europe also highlights the importance of financial reporting in terms of quality, transparency and timing. The disclosure of financial information of poor quality that lacks transparency or is published late is considered weak Corporate Governance by Dagong Europe. Dagong Europe applies a -1 notch adjustment for Weak Corporate Governance framework and a -3 notch adjustment on Very Weak Corporate Governance framework for the final IFSA level. As mentioned above, a Neutral assessment does not alter the IFSA level. B2 Development Strategy As described in Dagong Europe s Proposed Criteria for Rating Financial Institutions, the analysis of the development strategy of any insurance company ranges from a basic review of the organisational structure to a more in depth analysis of the management skills and ability to fulfill the strategic plan and focus on the long-term sustainability of the business model. In any business model, the business philosophy and strategy plays key roles in determining the long-term objectives and risks that the management is willing to undertake for achieving its strategic goals. It is important that the management s philosophy and actions provide realistic strategies that reflect the real competitive advantages and disadvantages of the company. Unrealistic expansionary strategies, relaxing underwriting standards, aggressive pricing strategies, increasing commissions to intermediaries to gain market share all unnecessarily increase the company s overall risk appetite and misalign the real performance from approved policies. On the other hand, an overly conservative management strategy may result in missed business opportunities and reduced competitive strength in the long-term.a comprehensive analysis of management s ability to implement the business strategy and its competency in achieving it are fundamental to Dagong Europe. As a key tool to analyse the quality of management, Dagong Europe request access to a company s management reporting system and reports to address the soundness of the information and data shared for decision-making purposes and successful execution. The analysis of the growth strategy also includes any merger and acquisition (M&A) process put in place. It is well known that M&A involve risks that are sometimes difficult to identify. The success and value creation through M&A depends heavily on an adequate strategic fit among the merging entities. Management's business decisions and plans for poorly performing business units or those that no longer make strategic sense represent another relevant area for analysis. Objective appraisals of business units and disciplined approaches in dealing with under-performers (divestiture, restructuring, discontinuation etc.) are reviewed. In addition to the company s strategic analysis for the long-term, Dagong Europe includes within the Development Strategy analysis a view on the trend in household savings and indebtedness in relation to the GDP. This analysis is focused specifically on 11

13 Life insurance, basically to address the coherence of the growth strategy with the future macro scenario in which the company is developing its business model. The score on Development Strategy is determined by a seven-point qualitative opinion scale ranging from Excellent to Very Weak. C Sustainability and Competition Sustainability and Competition factors are materials that help an entity to position itself within the competitive environment and develop a successful business strategy. The ability of an entity to scale its operation and gain a stable market share provides a basis for long-term earnings and therefore financial sustainability. For Sustainability and Competition, Dagong Europe analyses the following sub-factors: C1 Competitive Position The ability of an insurance company to develop a competitive advantage provides a basis to generate stable profits and long-term returns. In that context, an insurance company should carefully manage and monitor the competitive environment to foresee the effects that any competitive change would have on its business model and eventually, competitive position. Since the insurance industry is very sensitive to changes in pricing and underwriting policies, the ability of a company to compete and offer differentiated products with adequate risk pricing without jeopardizing the shortterm profitability is carefully analysed by Dagong Europe. The competitive advantages can be a result of an internal strength or an external factor that allows the entity to offer a distinctive product. However, insurance companies develop competitive advantages trough mastering specific market knowledge on specific segments or focusing on business lines where they are able to demonstrate above-average underwriting performance. Controls over distribution channels, adequate agreements with insurance intermediaries, an efficient underwriting cost structure and easy access to target or captive markets are cores for an insurance company to strengthen the competitive position within the insurance industry. Market dominance in terms of market share is important; however, it is analysed not only in gross terms but detailed by market, product, underwriting ability, loss rate track record and ability to absorb unexpected risks or actuarial changes. The score on Competitive Position is determined by a seven-point qualitative opinion scale from Excellent to Very Weak on each of the following measures: Competitive Position (Market Share): Market position and market share per market and product; client recognition; brand name; strong niche market position. Distribution Channels for Life Insurance: number of distribution channels with more than 10% premiums, measures the strength and dominance of the company s ability to keep control over any distribution channel. 12

14 Distribution Channels for Non-Life Insurance: underwriting expenses / net premiums, measures the strength and dominance of the company s ability to keep control over any distribution channel. C2 Size Dagong Europe believes small companies can enjoy a significant competitive advantage when they build defendable market positions in niche segments through specific market knowledge in terms of product underwriting risks, pricing and management of loss ratios. Within the Criteria, however, small or modest size is considered to be an adverse factor in the insurance industry when it is not supported by a proven market specialization in niche segments or business lines (e.g. P&C focused on catastrophic risks, agriculture insurance etc.). Small companies with no market specialization tend to be more concentrated geographically and also in terms of product, supplier and customer base, exposing themselves to adverse situations if unexpected catastrophic events occur or health risks arise. Although Total Assets size is taken into consideration for scoring insurance companies within the Size indicator, additional attention is given to relative revenues, as it determines market position, extent of diversification and financial flexibility. C3 Diversification Diversification is an important factor to be considered in the analysis of any insurance company. In the case of both, Life and Non-Life insurance companies, geographic and product diversification can help to spread the concentration of underwriting risks and reduce the exposure of the balance sheet to unexpected losses as a consequence of specific events (natural disasters in the case of P&C, country economic recession in the case of global credit trade, actuarial changes in annuities, etc.). In addition, the diversification effect can help insurance companies develop a more resilient business model with reduced dependence on premiums generated by fewer business lines, target segments or any other risk concentration. That said, diversification help insurance companies to spread the risks they underwrite and reduce the effects on the balance sheet from the occurrence of a single risk event. Developing business segments that are not of the entity s expertise, or that are in markets where broader knowledge of risk occurrence or large business intelligence are required to be successfu, could be viewed as a potential weakness instead of a business opportunity. In that context, insurance companies that claim to enter a market or to develop a business line only for diversification purposes is carefully analysed in order to determine the potential benefits in terms of underwriting capabilities. The level of business diversification is also influenced by the degree of risks the company is willing to accept, both in terms of business mix and market segmentation. One of the key factors to improve diversification in insurance companies is the geographical spread of underwriting risks. Premium volume or market share alone does not represent the business coverage adequately. For Non-Life insurance, mostly P&C and credit - trade insurance, the geographic location of their business can have a material impact on its financial profile if unexpected catastrophic events take place, such as natural disasters, terrorist attacks, etc. 13

15 In addition, business lines concentrated in market sensitive products in terms of regulatory pressures (e.g. health care insurance) are also evaluated carefully to identify its diversification benefits. Since underwriting expertise is extremely important in terms of the business diversification strategy developed by any insurance company, the Underwriting Strength analysis also complements the analysis on Diversification. Dagong Europe analyses and reviews in detail the nature of the diversification and the expertise of the entity in terms of market and business model, to fairly assess the diversification effect. The score on Diversification is determined by a seven-point qualitative opinion scale ranging from Excellent to Very Weak on each of the following measures: Product Lines Geographic Segmentation D Risk Management For Dagong Europe, proven ability and expertise to successfully manage risks is a key qualitative factor for insurance companies that demonstrates their long-term individual financial sustainability. An insurance company s ability to generate operating profits under a solid risk management framework in terms of underwriting policies, investment strategy and product risk management is analysed and challenged. The business model developed by insurance companies carry underwriting, product and asset risks that need to be managed well to provide long-term profitability. This profitability is in turn, the result of an appropriate pricing structure that identifies and fairly estimates the underwriting risks acquired. Since the overall profitability that insurance companies achieve is highly determined by the level of risks accepted and rejected, the management of underwriting risk should be economically profitable in the long-term. The analysis of the management framework to determine, price, monitor and control risks is assessed in the business context for which the insurance company is set. The coherence of the risk management framework with the business model is the starting point for the analytical opinion. In this context, Dagong Europe assesses risk components managed by insurance companies separately: Underwriting/Investment Strength, Product Risk and Product Risk Management. D1 Underwriting / Investment Strength The importance of the risk appetite assessment in terms of underwriting policies for Non-Life insurance companies and investment strategies for Life insurance, the identification of business incentives and the review of the practical application of risk appetite are vital factors for assessing an insurance company s risk management. For Non-Life insurance, Dagong Europe evaluates the Underwriting Strength in terms of underwriting policies, risk acceptance, pricing and re-insurance policies to determine the level of overall product risk and ability to manage catastrophic events in the longterm. The analysis of re-insurance policies includes also a view on the reinsurance 14

16 record including past responses and current disputes that can affect the ability of an insurance company to transfer risks and eventually to pay to policyholders. Depending on the risk appetite of any insurance company, the level of re-insurance is a tool to spread risk concentration and protects against any undesirable risk present in the balance sheet. In the case of Life insurance, the analysis focuses on the Investment Strategy. Quality and diversification of the investment portfolio are taken into account when analysing the ability to manage reserves and to keep an adequate asset buffer to provide the agreed minimum yield to policyholders. This is more critical in the cases of guaranteed products, in which the volatility of the underlying investment portfolio could substantially affect the ability of a company to pay to policyholders in the long-term. It is worth noting that the investment strategy is also important for Non-Life insurance companies, as most of the net profit comes from the proceeds of the investment portfolio generated by the level of premiums earned. For Non-Life insurance companies with combined ratios near 100%, the core of the non-insurance profits from the return on the investment portfolio is key to keep solvency in the long-term. A detail of the investment portfolio is evaluated and analysed to identify the overall risk of asset default and the company s absorption capacity without affecting substantially its policyholders commitments and other debt obligations. A broader diversification in terms of asset classes, geographic and maturity, with good asset quality and liquidity will mitigate any uncertainty in terms of reserves sufficiency to absorb losses if forced asset sales are needed to face cash flows reduction to back policyholders obligations. Hence, Dagong Europe is keen in understanding the company s investment strategy, guidelines and how those are applied in practice to follow the company s operating cash flow needs and strategy. Dagong Europe analyses in detail the largest investment exposures or single investments that exceed a material portion of the total capital, which also represent a substantial portion of the company s total investment portfolio. In that case, in addition to a qualitative judgment on investment strategy, Dagong Europe monitors and evaluates (if possible) the reinvestment rate and any other relevant investment indicator, to understand the rationale and application of the investment strategy and their long-term effects on policyholders liabilities and other debt obligations. Dagong Europe s opinion on Underwriting / Investment Strength for both Life, and Non- Life Insurers, is based on a qualitative score of seven categories from Excellent to Very Weak. D2 Product Risk Opinion The product mix chosen by an insurance company gives an indication of the overall risk appetite, acceptance and ultimately risk absorption performance. The underwriting risk of a product is sometimes not entirely known when it is created and commercialised. Therefore, the real risk of the products arises only after its lifetime. If any specific product risk is not identified, chosen and managed well, it can have material effects on the operating profitability first with higher than expected loss ratios and secondly, affecting the level of reserves and deteriorating capital ratios. In that context, Dagong Europe evaluates the ability of an insurance company to manage its product mix in 15

17 terms of granularity, product loss ratio volatility, reserve requirements and product underwriting policies and limits. Dagong Europe s opinion on Product Risk is based on a qualitative score of seven categories from Excellent to Very Weak. D3 Product Risk Performance To complement the analysis of Product Risk, Dagong Europe applies more detailed qualitative factors to analyse the specific framework to manage product risk. Dagon Europe realises that data disclosure and data quality is not necessarily consistent across entities and markets. For this reason, in addition to a qualitative judgment on Product Risk, in the case of Life insurance, Dagong Europe monitors and evaluates the framework applied by the company to manage the mix of product risk and investment strategy. For example, special attention is given to the composition of the investment portfolio in terms of high risk investments (highly volatile equity, highyield debt obligations etc.) as a proportion of the total policyholders equity or over the total investment portfolio. Since this information is subject to each companies disclosure, due to lack of standardization on minimum requirements for data disclosure, in some cases this information is not easy to compare across companies and therefore, difficult to be used on a comparable ratio basis. This is the main motivation for Dagong Europe to analyse the Product Risk Management separately from the Product Risk. In the case of Non-Life insurance, the analysis of Product Risk Management includes a thorough understanding of the reinsurance policies and its dependence to determine the overall level of risk underwritten and the ability to manage catastrophic events. For Life insurance, the most straightforward financial ratio to analyse the level of risks carried in the balance sheet is based on the Loss Ratio. The ability of an insurance company to manage and absorb losses in the past and to allow flexibility to face any further increase in losses is key for analysing the strength in terms of financial flexibility and therefore sustainability. High volatility in the Loss ratio due to changes in underwriting policies, is evaluated carefully since it could generate further losses in the future that are not promptly recognised. On the other hand, losses due to unexpected events that were modeled or where pricing was not properly designed can affect substantially the company s ability to manage product risks going forward. The analysis of reinsurance includes also a view on the past response of reinsurance counterparties and the stage of current disputes that can have a material effect on the company s ability to fulfill its obligations with policyholders. However, a high level of reinsurance recoverables can increase significantly the dispute risk and expose the insurance company to counterparty risks that are difficult to manage. In addition, where there is concentration in few reinsurance counterparties, their ability to fulfill the reinsurance agreements is analysed accordingly. Product diversification, sound reinsurance counterparties (in terms of credit quality and record in response to claims), prudent reinsurance policies and reasonable risk pricing are important factors of Product Risk Management. Companies that have little economics of scale and no further loss absorption, the need to align their reinsurance 16

18 programs with the business strategy to provide enough protection from those risks that the company itself cannot absorb smoothly with their own cash generation. More detailed information is requested in terms of catastrophic protection, mainly for P&C companies. The measures that Dagong Europe uses to assess Product Risk Management strength are: Product Risk Management qualitative judgment Applicable for Life insurance only Loss Ratio / Net Premiums most recent year or year-to-date data Applicable for Non-Life insurance only Reinsurance Recoverables / Shareholder s Equity most recent year or yearto-date data Applicable for Non-Life insurance only E Financial Analysis The last component of the IFSA is focused solely on financial analysis, and includes a detailed view on Capital, Reserves, Liquidity and Profitability. This analysis provides a set of ratios to assess the financial soundness of insurance companies, which is then used also for peer comparison. A sound financial profile which can withstand peak of insurance losses and also economic cycles of lower demand for insurance products are the basis for a healthy and sustainable company s overall financial profile. The assessment of operating performance, balance sheet strengths and weaknesses, capital and reserves positions represent key drivers for long-term solvency prospects. Thus, Dagong Europe has divided the analysis into four sections: Capital, Reserves, Liquidity and Profitability. E1 Capital Capital is fundamental to the financial stability of any insurance company. It is the most certain source of funds to absorb potential and unexpected losses caused by the normal operation of risk underwriting and any other unexpected weakening of operational earnings, due to reduction in premiums written or increase in operational expenses related to changes in distribution channels. Capital is also the sole source of funding that is completely reliable to support any organic growth expansion if needed. To maintain a reasonable level of protection to policyholders, insurance companies are normally required by regulators to keep higher capital levels than those obtained from internal models, to offset potential operational losses. In that context, the capital analysis also includes an understanding of the minimum regulatory requirements and its comparability across countries. Dagong Europe reviews the composition of the company s capital base, the tools the management has in place to control and the capital needs, internal limits and minimum capital levels that are defined to face business cycles. Dagong Europe focuses its 17

19 attention on a company s minimum internal capital adequacy as an important indication of risk tolerance and ability to manage operational losses under tight financial scenarios. The internal capital adequacy level is also compared with any regulatory capital requirement if it exists. Since regulatory requirements in terms of capital adequacy may change within countries, the comparability is calculated based on the surplus over regulatory requirements as a portion of total capital, rather than the absolute surplus. In addition to capital ratios, the analysis includes the financial leverage managed by any insurance company to measure the indebtedness level in relation to its total capitalisation. A prudent management of capital and financial leverage can prevent an insurance company from being exposed excessively to unexpected losses, catastrophe risks, and adverse changes in underwriting that could affect the operational performance and deteriorate its capacity to pay policyholders commitments and financial debt. In addition, for Life insurance, the effect of poor investment performance or eventual investment portfolio losses can be mitigated by a stronger capital position that easily absorbs downturn economic and market conditions. The capital analysis emphasizes standard ratios, providing a high level of comparability between institutions and countries. The ratios that Dagong Europe uses to assess Capital Strength of any insurance company are: Capital Adequacy Ratio (Total Equity/Total Assets) - most recent year or yearto-date data Financial Leverage (Liabilities / Total Equity) - most recent year or year-to date data E2 Reserves The analysis of available loss reserves as well as a proven ability of loss reserves management is an important part of Dagong Europe s financial analysis. Track record of historical loss ratios, reserves adequacy volatility and reserve management techniques are being assessed. Poor reserve management techniques can impact negatively both operational profitability and capital levels, often with a certain time-lag, after products with underestimated risk profiles have been sold. Dagong Europe recognises that the quality of data available to analyse reserves adequacy is limited and also confidential --used for internal models only. In addition, reserves adequacy can be subject to volatility due to underlying changes in business mix, underwriting policies, actuarial changes or other causes. The reserve position and adjustments are carefully evaluated to understand the insurance company s ability to anticipate or manage eventual losses coming from underwriting policy changes, incorporation of new products or changes in reinsurance policies. The reserve adequacy level and growth observed in the past is key to understand the additional risks added to the balance sheet, and how the company build buffers to absorb them. For P&C, this will also help to identify trends in the industry in terms of changes in risk appetite and its alignment with the growth on premiums underwritten. This is also a tool to identify companies that have historically been under-reserved and those that present a stronger reserve position in the long- 18

20 term. The reserve adequacy is also complemented with the opinion provided by internal actuaries who work on proprietary reserve management models. The measures that Dagong Europe uses to assess Reserves are: Reserve Adequacy (1 year change in Reserves / Equity (3 year average) ) most recent year or year-to-date data Applicable for Non-Life insurance only Reserve Ratio (Policy Liabilities/Total Liabilities) most recent year or yearto-date data Applicable for Non-Life insurance only Reserve Management (e.g. reinvestment rate) qualitative judgment Applicable for Life insurance only E3 Liquidity The liquidity position in insurance companies, in general, is more related to the anticipation of cash needs to cover the policyholders claims and debt creditors requirements. The liquidity should not only be focused on cash availability or significant free cash flow generation, but also consider the investment strategy that allows easyto-liquidate investments possession. Dagong Europe gives special attention to liquidity management tools, including a qualitative analysis of liquidity plans (under contingency and normal scenarios) and a thorough understanding of the historical liquidity dynamics that an entity has faced during economic cycles with higher-than-expected policyholders claims. For Life insurance, a sound asset and liability management framework is utterly important, since certain business and product characteristics might require high investment leverage. Internal tools to achieve better cash flow that matches long-term liabilities are reviewed accordingly. For Non-Life insurance instead, the availability of liquidity buffers to match claim expenses is important, when the level of operating cash flow is not large enough and therefore exposes the entity to the risk of forced sales. The definition of the company s cash holding is subject to the information disclosed and the availability of detailed marketable securities portfolio -- to consider securities like e.g. government bonds (with the highest credit quality) as easy-to-liquidate securities in specific cases. Since the liquidation of this type of e securities would typically not cause any market loss, the total amount would be added to the definition of cash. The ratios that Dagong Europe uses to assess liquidity are: Cash / Policy holder Liability most recent year or year-to-date data Applicable for Life insurance only Cash / Technical Reserves most recent year or year-to-date data Applicable for Non-Life insurance only 19

Dagong Europe Criteria for Rating Insurance Companies 5 December 2014

Dagong Europe Criteria for Rating Insurance Companies 5 December 2014 Dagong Europe Criteria for Rating Insurance Companies 5 December 2014 Carola Saldías Senior Director Financial Institutions Analytical Team carola.saldias@dagongeurope.com Linas Grigaliunas Director Financial

More information

Dagong Europe Criteria for Rating Insurance Companies 18 November 2015

Dagong Europe Criteria for Rating Insurance Companies 18 November 2015 Dagong Europe Criteria for Rating Insurance Companies 18 November 2015 This document updates the previous Dagong Europe Criteria for Rating Insurance Companies, dated 5 December 2014. The update reflects

More information

Rating Methodology for Domestic Life Insurance Companies

Rating Methodology for Domestic Life Insurance Companies Rating Methodology for Domestic Life Insurance Companies Introduction ICRA Lanka s Claim Paying Ability Ratings (CPRs) are opinions on the ability of life insurance companies to pay claims and policyholder

More information

INSURANCE RATING METHODOLOGY

INSURANCE RATING METHODOLOGY INSURANCE RATING METHODOLOGY The primary function of PACRA is to evaluate the capacity and willingness of an entity / issuer to honor its financial obligations. Our ratings reflect an independent, professional

More information

Rating Methodology Life / Health Insurance

Rating Methodology Life / Health Insurance CREDIT RATING INFORMATION AND SERVICES LIMITED Rating Methodology Life / Health Insurance Rating Methodology Life / Health Insurance Company CRISL S CLAIM PAYING ABILITY (CPA) RATING PHILOSOPHY An insurer

More information

Rating Methodology by Sector. Non-life Insurance

Rating Methodology by Sector. Non-life Insurance Last updated: March 26, 2012 Rating Methodology by Sector Non-life Insurance *This rating methodology is a modification of the rating methodology made public on July 13, 2011, and modifications are made

More information

Claims Paying Ability Ratings for General Insurance Companies

Claims Paying Ability Ratings for General Insurance Companies Claims Paying Ability Ratings for General Insurance Companies ICRA's Claims Paying Ability Ratings (CPRs) for general insurance companies are opinions on their ability to honour policy-holder claims and

More information

ICRA Lanka s Credit Rating Methodology for Non-Banking Finance Companies

ICRA Lanka s Credit Rating Methodology for Non-Banking Finance Companies ICRA Lanka s Credit Rating Methodology for Non-Banking Finance Companies Non-Banking Finance Companies (NBFCs) play an important role in the Sri Lankan financial market. While the Central bank of Sri Lanka

More information

LIFE INSURANCE RATING METHODOLOGY CREDIT RATING AGENCY OF

LIFE INSURANCE RATING METHODOLOGY CREDIT RATING AGENCY OF LIFE INSURANCE RATING METHODOLOGY CREDIT RATING AGENCY OF BANGLADESH LIMITED 1 CRAB S RATING PROCESS An independent and professional approach of the CRAB is designed to ensure reliable, consistent and

More information

CRISIL Methodology for rating Life Insurance Companies. Tarun Bhatia Head Financial Sector Ratings

CRISIL Methodology for rating Life Insurance Companies. Tarun Bhatia Head Financial Sector Ratings CRISIL Methodology for rating Life Insurance Companies Tarun Bhatia Head Financial Sector Ratings August 3, 2007 2. CRISIL Background First Rating Agency in India Largest Rating Agency outside of USA (fourth

More information

Rating Methodology by Sector. Life Insurance

Rating Methodology by Sector. Life Insurance Last Updated: March 26, 2012 Rating Methodology by Sector Life Insurance *This rating methodology is a modification of the rating methodology made public on July 13, 2011, and modifications are made to

More information

Rating Methodology by Sector. Non-life Insurance

Rating Methodology by Sector. Non-life Insurance Last updated: July 1, 2013 Rating Methodology by Sector Non-life Insurance The following mainly applies to non-life insurance companies in Japan. When determining the credit rating of a non-life insurance

More information

Society of Actuaries in Ireland

Society of Actuaries in Ireland Society of Actuaries in Ireland Information and Assistance Note LA-1: Actuaries involved in the Own Risk & Solvency Assessment (ORSA) under Solvency II Life Assurance and Life Reinsurance Business Issued

More information

Standard & Poor s perspective on Swedish insurance sector risks

Standard & Poor s perspective on Swedish insurance sector risks Standard & Poor s perspective on Swedish insurance sector risks Summary In May 2013, Standard & Poor's published new insurance criteria. Our objective with the new criteria is to improve the transparency

More information

Central Bank of Ireland Guidelines on Preparing for Solvency II Pre-application for Internal Models

Central Bank of Ireland Guidelines on Preparing for Solvency II Pre-application for Internal Models 2013 Central Bank of Ireland Guidelines on Preparing for Solvency II Pre-application for Internal Models 1 Contents 1 Context... 1 2 General... 2 3 Guidelines on Pre-application for Internal Models...

More information

Claims Paying Ability / Financial Strength Rating Methodology for Insurance Companies

Claims Paying Ability / Financial Strength Rating Methodology for Insurance Companies Claims Paying Ability / Financial Strength Rating Methodology for Insurance Companies CRAF s Claims Paying Ability (CPA) / Financial Strength Rating (FSR) is an opinion on an insurance company s financial

More information

RATING METHODOLOGY FOR STOCK BROKING FIRMS

RATING METHODOLOGY FOR STOCK BROKING FIRMS RATING METHODOLOGY FOR STOCK BROKING FIRMS Stock Broking Firms perform an important role in the capital market by facilitating trades for all categories of investors. The role of intermediaries like Stock

More information

How to Choose a Life Insurance Company *YP½PPMRK 4VSQMWIW A 2014 GUIDE THROUGH RELEVANT INDUSTRY INFORMATION

How to Choose a Life Insurance Company *YP½PPMRK 4VSQMWIW A 2014 GUIDE THROUGH RELEVANT INDUSTRY INFORMATION How to Choose a Life Insurance Company *YP½PPMRK 4VSQMWIW A 2014 GUIDE THROUGH RELEVANT INDUSTRY INFORMATION Because the most important people in your life will car, or computer, most people are completely

More information

Capital management. Philip Scott, Group Finance Director

Capital management. Philip Scott, Group Finance Director Capital management Philip Scott, Group Finance Director Disclaimer This presentation may include oral and written forward-looking statements with respect to certain of Aviva s plans and its current goals

More information

CONSULTATION PAPER P016-2006 October 2006. Proposed Regulatory Framework on Mortgage Insurance Business

CONSULTATION PAPER P016-2006 October 2006. Proposed Regulatory Framework on Mortgage Insurance Business CONSULTATION PAPER P016-2006 October 2006 Proposed Regulatory Framework on Mortgage Insurance Business PREFACE 1 Mortgage insurance protects residential mortgage lenders against losses on mortgage loans

More information

Rating Methodology by Sector. Life Insurance

Rating Methodology by Sector. Life Insurance Last Updated: July 1, 2013 Rating Methodology by Sector Life Insurance The following mainly applies to life insurance companies in Japan. The credit ratings of a life insurance company is assessed by focusing

More information

THE INSURANCE BUSINESS (SOLVENCY) RULES 2015

THE INSURANCE BUSINESS (SOLVENCY) RULES 2015 THE INSURANCE BUSINESS (SOLVENCY) RULES 2015 Table of Contents Part 1 Introduction... 2 Part 2 Capital Adequacy... 4 Part 3 MCR... 7 Part 4 PCR... 10 Part 5 - Internal Model... 23 Part 6 Valuation... 34

More information

EIOPA Risk Dashboard September 2015 Q2 2015 data PUBLIC. EIOPA-FS-15/651 Frankfurt, 16th September 2015

EIOPA Risk Dashboard September 2015 Q2 2015 data PUBLIC. EIOPA-FS-15/651 Frankfurt, 16th September 2015 EIOPA Risk Dashboard September 2015 Q2 2015 data PUBLIC EIOPA-FS-15/651 Frankfurt, 16th September 2015 Summary The release of this EIOPA Risk Dashboard is based on 2015- Q2 indicators submitted on a best

More information

The package of measures to avoid artificial volatility and pro-cyclicality

The package of measures to avoid artificial volatility and pro-cyclicality The package of measures to avoid artificial volatility and pro-cyclicality Explanation of the measures and the need to include them in the Solvency II framework Contents 1. Key messages 2. Why the package

More information

for Analysing Listed Private Equity Companies

for Analysing Listed Private Equity Companies 8 Steps for Analysing Listed Private Equity Companies Important Notice This document is for information only and does not constitute a recommendation or solicitation to subscribe or purchase any products.

More information

https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?print=1&pr_id=90...

https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?print=1&pr_id=90... Page 1 of 5 Fitch Upgrades NZ's Heartland Bank, Affirms Five Other FIs Ratings Endorsement Policy 28 Oct 2014 12:56 AM (EDT) Fitch Ratings-Sydney-28 October 2014: Fitch Ratings has upgraded Heartland Bank

More information

Rating Criteria for Finance Companies

Rating Criteria for Finance Companies The broad analytical framework used by CRISIL to rate finance companies is the same as that used for banks and financial institutions. In addition, CRISIL also addresses certain issues that are specific

More information

RISK-BASED SUPERVISORY FRAMEWORK TEMPLATE FOR INSURANCE COMPANIES

RISK-BASED SUPERVISORY FRAMEWORK TEMPLATE FOR INSURANCE COMPANIES RISK-BASED SUPERVISORY FRAMEWORK TEMPLATE FOR INSURANCE COMPANIES JUNE 26, 2006 This publication was produced for review by the United States Agency for International Development. It was prepared by Stephen

More information

GUIDANCE NOTE 252 ACTUARIAL APPRAISALS OF LIFE INSURANCE BUSINESS

GUIDANCE NOTE 252 ACTUARIAL APPRAISALS OF LIFE INSURANCE BUSINESS THE INSTITUTE OF ACTUARIES OF AUSTRALIA A.C.N. 000 423 656 GUIDANCE NOTE 252 ACTUARIAL APPRAISALS OF LIFE INSURANCE BUSINESS PURPOSE This guidance note sets out the considerations that bear on the actuary's

More information

A.M. Best - Congressional Testimony Committee on Financial Services America s Insurance Industry: Keeping the Promise

A.M. Best - Congressional Testimony Committee on Financial Services America s Insurance Industry: Keeping the Promise A.M. Best - Congressional Testimony Committee on Financial Services America s Insurance Industry: Keeping the Promise The horrible events of September 11 th caused shocks throughout the world s financial

More information

Directors and Officers Liability Insurance Guidance and Advice for Risk Managers

Directors and Officers Liability Insurance Guidance and Advice for Risk Managers Directors and Officers Liability Insurance Guidance and Advice for Risk Managers The insurance market has responded to recent corporate failures by requiring more information from organisations seeking

More information

Asia Insurance Co. Ltd.

Asia Insurance Co. Ltd. Primary Credit Analyst: Eunice Tan, Hong Kong (852) 2533-3553; eunice.tan@standardandpoors.com Secondary Contact: Mark Li, Beijing (861) 6569-2998; mark.haihu.li@standardandpoors.com Table Of Contents

More information

APPENDIX A NCUA S CAMEL RATING SYSTEM (CAMEL) 1

APPENDIX A NCUA S CAMEL RATING SYSTEM (CAMEL) 1 APPENDIX A NCUA S CAMEL RATING SYSTEM (CAMEL) 1 The CAMEL rating system is based upon an evaluation of five critical elements of a credit union's operations: Capital Adequacy, Asset Quality, Management,

More information

Insurer solvency standards reducing risk in a risk business

Insurer solvency standards reducing risk in a risk business Insurer solvency standards reducing risk in a risk business Richard Dean Significant earthquakes in Christchurch have brought the need for stability in the New Zealand insurance market into sharp focus.

More information

Enterprise Risk Management in a Highly Uncertain World. A Presentation to the Government-University- Industry Research Roundtable June 20, 2012

Enterprise Risk Management in a Highly Uncertain World. A Presentation to the Government-University- Industry Research Roundtable June 20, 2012 Enterprise Risk Management in a Highly Uncertain World A Presentation to the Government-University- Industry Research Roundtable June 20, 2012 CRO Council Introduction Mission The North American CRO Council

More information

EXHIBIT H INSURER PROFILE SUMMARY TEMPLATE

EXHIBIT H INSURER PROFILE SUMMARY TEMPLATE EXHIBIT H INSURER PROFILE SUMMARY TEMPLATE Introductory Guidance An Insurer Profile Summary should be developed by the domestic state for each domestic insurer. The Insurer Profile Summary should be updated

More information

Deriving Value from ORSA. Board Perspective

Deriving Value from ORSA. Board Perspective Deriving Value from ORSA Board Perspective April 2015 1 This paper has been produced by the Joint Own Risk Solvency Assessment (ORSA) Subcommittee of the Insurance Regulation Committee and the Enterprise

More information

SOA Annual Symposium Shanghai. November 5-6, 2012. Shanghai, China. Session 2a: Capital Market Drives Investment Strategy.

SOA Annual Symposium Shanghai. November 5-6, 2012. Shanghai, China. Session 2a: Capital Market Drives Investment Strategy. SOA Annual Symposium Shanghai November 5-6, 2012 Shanghai, China Session 2a: Capital Market Drives Investment Strategy Genghui Wu Capital Market Drives Investment Strategy Genghui Wu FSA, CFA, FRM, MAAA

More information

Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes for Islamic Banks

Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes for Islamic Banks Interest-in-Shares and Collective Investment Schemes for Islamic Banks BNM/RH/ GL 002-5 PART A: INTRODUCTION AND OVERVIEW...1 1. Overview of the Guidelines... 1 2. Definitions... 2 3. Legal Enforceability

More information

Basel II, Pillar 3 Disclosure for Sun Life Financial Trust Inc.

Basel II, Pillar 3 Disclosure for Sun Life Financial Trust Inc. Basel II, Pillar 3 Disclosure for Sun Life Financial Trust Inc. Introduction Basel II is an international framework on capital that applies to deposit taking institutions in many countries, including Canada.

More information

FITCH AFFIRMS NORWEGIAN SAVINGS BANKS

FITCH AFFIRMS NORWEGIAN SAVINGS BANKS FITCH AFFIRMS NORWEGIAN SAVINGS BANKS Fitch Ratings-London-04 November 2015: Fitch Ratings has affirmed SpareBank 1 Nord-Norge's (SNN) Long-term Issuer Default Rating (IDR) at 'A', SpareBank 1 SMN's (SMN),

More information

PNB Life Insurance Inc. Risk Management Framework

PNB Life Insurance Inc. Risk Management Framework 1. Capital Management and Management of Insurance and Financial Risks Although life insurance companies are in the business of taking risks, the Company limits its risk exposure only to measurable and

More information

Insurance Credit Rating Methodology

Insurance Credit Rating Methodology Insurance Credit Rating Methodology June 2012 Morningstar 2012. All Rights Reserved. Redistribution is prohibited without written permission. Morningstar s Credit Ratings & Research is produced and offered

More information

R&I Rating Methodology by Sector

R&I Rating Methodology by Sector R&I Rating Methodology by Sector Life Insurance October 31, 2013 R&I applies its rating methodology for life insurance to life insurance companies that provide death benefits centered on mortality insurance

More information

Principles for An. Effective Risk Appetite Framework

Principles for An. Effective Risk Appetite Framework Principles for An Effective Risk Appetite Framework 18 November 2013 Table of Contents Page I. Introduction... 1 II. Key definitions... 2 III. Principles... 3 1. Risk appetite framework... 3 1.1 An effective

More information

FITCH COMPLETES COMMERCIAL FLEET LESSORS PEER REVIEW: AFFIRMS RATINGS; OUTLOOK STABLE

FITCH COMPLETES COMMERCIAL FLEET LESSORS PEER REVIEW: AFFIRMS RATINGS; OUTLOOK STABLE FITCH COMPLETES COMMERCIAL FLEET LESSORS PEER REVIEW: AFFIRMS RATINGS; OUTLOOK STABLE Fitch Ratings-Chicago-17 April 2014: Fitch Ratings has completed its peer review of two rated commercial fleet lessors,

More information

ASR Nederland NV Assigned 'BBB+' Rating; Ratings On Core Insurance Operations Affirmed; Outlook Stable

ASR Nederland NV Assigned 'BBB+' Rating; Ratings On Core Insurance Operations Affirmed; Outlook Stable Research Update: ASR Nederland NV Assigned 'BBB+' Rating; Ratings On Core Insurance Operations Affirmed; Primary Credit Analyst: Oliver Herbert, London (44) 20-7176-7054; oliver.herbert@standardandpoors.com

More information

RISK MANAGEMENT REPORT (for the Financial Year Ended 31 March 2012)

RISK MANAGEMENT REPORT (for the Financial Year Ended 31 March 2012) RISK MANAGEMENT REPORT (for the Financial Year Ended 31 March 2012) Integrated Risk Management Framework The Group s Integrated Risk Management Framework (IRMF) sets the fundamental elements to manage

More information

GUIDELINES ON RISK MANAGEMENT AND INTERNAL CONTROLS FOR INSURANCE AND REINSURANCE COMPANIES

GUIDELINES ON RISK MANAGEMENT AND INTERNAL CONTROLS FOR INSURANCE AND REINSURANCE COMPANIES 20 th February, 2013 To Insurance Companies Reinsurance Companies GUIDELINES ON RISK MANAGEMENT AND INTERNAL CONTROLS FOR INSURANCE AND REINSURANCE COMPANIES These guidelines on Risk Management and Internal

More information

Zurich s approach to Enterprise Risk Management. John Scott Chief Risk Officer Zurich Global Corporate

Zurich s approach to Enterprise Risk Management. John Scott Chief Risk Officer Zurich Global Corporate Zurich s approach to Enterprise Risk Management John Scott Chief Risk Officer Zurich Global Corporate Agenda 1. The risks we face 2. Strategy risk and risk tolerance 3. Zurich s ERM framework 4. Capital

More information

Sanlam Life Insurance Limited Principles and Practices of Financial Management (PPFM) for Sanlam Life Participating Annuity Products

Sanlam Life Insurance Limited Principles and Practices of Financial Management (PPFM) for Sanlam Life Participating Annuity Products Sanlam Life Insurance Limited Principles and Practices of Financial Management (PPFM) for Sanlam Life Participating Annuity Products Table of Contents Section 1 - Information 1.1 Background 2 1.2 Purpose

More information

Central Bank of Ireland Guidelines on Preparing for Solvency II System of Governance

Central Bank of Ireland Guidelines on Preparing for Solvency II System of Governance 2013 Central Bank of Ireland Guidelines on Preparing for Solvency II System of Governance Contents 1 Context... 1 2 General... 2 3 Guidelines on the System of Governance... 3 3.1 Section I General Provisions...

More information

Modelling and Management of Tail Risk in Insurance

Modelling and Management of Tail Risk in Insurance Modelling and Management of Tail Risk in Insurance IMF conference on operationalising systemic risk monitoring Peter Sohre, Head of Risk Reporting, Swiss Re Washington DC, 27 May 2010 Visit of ntuc ERM

More information

Dumfries Mutual Insurance Company Financial Statements For the year ended December 31, 2010

Dumfries Mutual Insurance Company Financial Statements For the year ended December 31, 2010 Dumfries Mutual Insurance Company Financial Statements For the year ended December 31, 2010 Contents Independent Auditors' Report 2 Financial Statements Balance Sheet 3 Statement of Operations and Unappropriated

More information

Federal Reserve Bank of Atlanta. Components of a Sound Credit Risk Management Program

Federal Reserve Bank of Atlanta. Components of a Sound Credit Risk Management Program Federal Reserve Bank of Atlanta Components of a Sound Credit Risk Management Program LOAN POLICY The loan policy is the foundation for maintaining sound asset quality because it outlines the organization

More information

Actuarial Guidance Note 9: Best Estimate Assumptions

Actuarial Guidance Note 9: Best Estimate Assumptions ACTUARIAL SOCIETY OF HONG KONG Actuarial Guidance Note 9: Best Estimate Assumptions 1. BACKGROUND AND PURPOSE 1.1 Best estimate assumptions are an essential and important component of actuarial work. The

More information

Meet challenges head on

Meet challenges head on Meet challenges head on Deal Advisory / Global We can help you master Financial Restructuring. Enhancing value through financial restructuring. / 1 Your vision. Our proven capabilities. Despite its challenges,

More information

Institute of Actuaries of India

Institute of Actuaries of India Institute of Actuaries of India GUIDANCE NOTE (GN) 6: Management of participating life insurance business with reference to distribution of surplus Classification: Recommended Practice Compliance: Members

More information

Bank Capital Adequacy under Basel III

Bank Capital Adequacy under Basel III Bank Capital Adequacy under Basel III Objectives The overall goal of this two-day workshop is to provide participants with an understanding of how capital is regulated under Basel II and III and appreciate

More information

2. The European insurance sector 1

2. The European insurance sector 1 2. The European insurance sector 1 As discussed in Chapter 1, the economic conditions in European countries are still fragile, despite some improvements in the first half of 2013. 2.1. Market growth The

More information

R.V.I. Guaranty Co. Ltd. And Subsidiaries 'BBB' Ratings Affirmed After Insurance Criteria Change; The Outlook Is Stable

R.V.I. Guaranty Co. Ltd. And Subsidiaries 'BBB' Ratings Affirmed After Insurance Criteria Change; The Outlook Is Stable Research Update: R.V.I. Guaranty Co. Ltd. And Subsidiaries 'BBB' Ratings Affirmed After Insurance Criteria Change; The Outlook Is Stable Primary Credit Analyst: David S Veno, New York (1) 212-438-2108;

More information

SCOR completes a very good second quarter 2011, with a net income of EUR 120 million

SCOR completes a very good second quarter 2011, with a net income of EUR 120 million N 25 2011 (p.1/6) For further information, please contact: Co Jean-Charles Simon / Géraldine Fontaine +33 (0) 1 46 98 73 17 Communications and Public Affairs Antonio Moretti +44 (0) 203 207 85 62 Investor

More information

A. M. Best Company & The Rating Process

A. M. Best Company & The Rating Process A. M. Best Company & The Rating Process Raymond J. Thomson, ARe, ARM Senior Financial Analyst, Property/Casualty Ratings Oldwick NJ Disclaimer AM Best Company (AMB) and/or its licensors and affiliates.

More information

NEW ZEALAND SOCIETY OF ACTUARIES PROFESSIONAL STANDARD NO. 3 DETERMINATION OF LIFE INSURANCE POLICY LIABILITIES MANDATORY STATUS

NEW ZEALAND SOCIETY OF ACTUARIES PROFESSIONAL STANDARD NO. 3 DETERMINATION OF LIFE INSURANCE POLICY LIABILITIES MANDATORY STATUS NEW ZEALAND SOCIETY OF ACTUARIES PROFESSIONAL STANDARD NO. 3 DETERMINATION OF LIFE INSURANCE POLICY LIABILITIES MANDATORY STATUS 1 Introduction...2 2 Effective Date...2 3 Definitions...2 PART A CONTRACT

More information

Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes

Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes Interest-in-Shares and Collective BNM/RH/GL 001-30 Prudential Financial Policy Department PART A INTRODUCTION AND OVERVIEW... 1 1. Overview of the Guidelines... 1 2. Definitions... 1 3. Legal Enforceability

More information

Claims Paying Ability Rating Methodology for Insurance Companies

Claims Paying Ability Rating Methodology for Insurance Companies Claims Paying Ability Rating Methodology for Insurance Companies CARE s Claims Paying Ability (CPA) rating is an opinion on an insurance company s financial strength and measures its ability to honour

More information

CONTRIBUTION FROM THE ITALIAN FACTORING INDUSTRY TO THE CEBS QUESTIONNAIRE ON THE SURVEY OF MARKET PRACTICES ON LARGE EXPOSURES

CONTRIBUTION FROM THE ITALIAN FACTORING INDUSTRY TO THE CEBS QUESTIONNAIRE ON THE SURVEY OF MARKET PRACTICES ON LARGE EXPOSURES CONTRIBUTION FROM THE ITALIAN FACTORING INDUSTRY TO THE CEBS QUESTIONNAIRE ON THE SURVEY OF MARKET PRACTICES ON LARGE EXPOSURES June 2006 Introduction This document presents the views of the Italian factoring

More information

QBE INSURANCE GROUP LIMITED. JP Morgan AUSTRALASIAN INVESTMENT CONFERENCE SINGAPORE OCTOBER 2004. Presenter: Neil Drabsch, CFO

QBE INSURANCE GROUP LIMITED. JP Morgan AUSTRALASIAN INVESTMENT CONFERENCE SINGAPORE OCTOBER 2004. Presenter: Neil Drabsch, CFO QBE INSURANCE GROUP LIMITED JP Morgan AUSTRALASIAN INVESTMENT CONFERENCE SINGAPORE OCTOBER 2004 Presenter: Neil Drabsch, CFO 1 Company overview QBE is an Australian-based general insurance and reinsurance

More information

Position paper on. Treatment of captives in SOLVENCY II

Position paper on. Treatment of captives in SOLVENCY II Position paper on Treatment of captives in SOLVENCY II 1 INTRODUCTION...3 2 NATURE AND RATIONALE OF CAPTIVES...3 2.1 Captive Objectives...3 3 THE SOLVENCY II OBJECTIVES...5 EU OBJECTIVE 1: Improve protection

More information

MERCHANT NAVY OFFICERS PENSION FUND STATEMENT OF INVESTMENT PRINCIPLES

MERCHANT NAVY OFFICERS PENSION FUND STATEMENT OF INVESTMENT PRINCIPLES MERCHANT NAVY OFFICERS PENSION FUND STATEMENT OF INVESTMENT PRINCIPLES Introduction The main purpose of the MNOPF is the provision of pensions for Officers in the British Merchant Navy on retirement at

More information

Report on the findings

Report on the findings Parallel Run on the Valuation of Long Term Insurance Business, Risk Based Capital Requirements for Insurers and Non-Life Outstanding Claims Reserves. Report on the findings TABLE OF CONTENTS EXECUTIVE

More information

Protective Reports First Quarter of 2011 Results and Announces Completion of Coinsurance Agreement

Protective Reports First Quarter of 2011 Results and Announces Completion of Coinsurance Agreement Protective Life Corporation Post Office Box 2606 Birmingham, AL 35202 205-268-1000 FOR IMMEDIATE RELEASE Protective Reports First Quarter of 2011 Results and Announces Completion of Coinsurance Agreement

More information

Sanlam Life Insurance Limited Principles of Financial Management (PFM) for Sanlam Life Linked and Market- Related Products

Sanlam Life Insurance Limited Principles of Financial Management (PFM) for Sanlam Life Linked and Market- Related Products Version 5: June 2013 Sanlam Life Insurance Limited Principles of Financial Management (PFM) for Sanlam Life Linked and Market- Related Products Table of Contents Section 1 - Introduction 1.1 Background

More information

Capital Policy and Safeguards Statement for Merchant Acquirer Limited Purpose Banks

Capital Policy and Safeguards Statement for Merchant Acquirer Limited Purpose Banks Capital Policy and Safeguards Statement for Merchant Acquirer Limited Purpose Banks Capital Each of the minimum capital requirements is designed to stand alone, and each of the capital requirements must,

More information

Latin America. Developing Solvency Regulations. Brazil

Latin America. Developing Solvency Regulations. Brazil Latin America Developing Solvency Regulations By Alda Fassbender, Carlos Gonzalez, Diego Guaita and Karina Yabra Many Latin American countries are currently transforming their solvency regulations and

More information

Risk Management Programme Guidelines

Risk Management Programme Guidelines Risk Management Programme Guidelines Prudential Supervision Department Non-bank deposit takers Issued: July 2009 2 CONTENTS Part 1 Introduction... 3 1. Purpose of this document... 3 2. Meaning of risk...

More information

Key performance indicators

Key performance indicators The information included in the following sheets of this Excel file forms an integral part of the Aegon press release on the Q2 results 2013 as published on August 8, 2013. Cautionary note regarding non-ifrs

More information

Managing Risk at Bank of America Corporation. Overview

Managing Risk at Bank of America Corporation. Overview Managing Risk at Bank of America Corporation Overview Risk is inherent in every material business activity that we undertake. Our business exposes us to strategic, credit, market, liquidity, compliance,

More information

INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS

INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS Standard No. 13 INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS STANDARD ON ASSET-LIABILITY MANAGEMENT OCTOBER 2006 This document was prepared by the Solvency and Actuarial Issues Subcommittee in consultation

More information

China Life Insurance Co. Ltd.

China Life Insurance Co. Ltd. Primary Credit Analyst: Connie Wong, Singapore (65) 6239-6353; connie_wong@standardandpoors.com Secondary Contact: Philip P Chung, CFA, Singapore (65) 6239-6343; philip_chung@standardandpoors.com Table

More information

MML Bay State Life Insurance Company Management s Discussion and Analysis Of the 2005 Financial Condition and Results of Operations

MML Bay State Life Insurance Company Management s Discussion and Analysis Of the 2005 Financial Condition and Results of Operations MML Bay State Life Insurance Company Management s Discussion and Analysis Of the 2005 Financial Condition and Results of Operations General Management s Discussion and Analysis of Financial Condition and

More information

Below is a general overview of Captives with particular information regarding Labuan International and Business Financial Centre (Labuan IBFC).

Below is a general overview of Captives with particular information regarding Labuan International and Business Financial Centre (Labuan IBFC). LABUAN CAPTIVES Below is a general overview of Captives with particular information regarding Labuan International and Business Financial Centre (Labuan IBFC). Kensington Trust Labuan Limited is a licensed

More information

CONSULTATION PAPER Proposed Prudential Risk-based Supervisory Framework for Insurers

CONSULTATION PAPER Proposed Prudential Risk-based Supervisory Framework for Insurers INSURANCE CONSULTATION PAPER Proposed Prudential Risk-based Supervisory Framework for Insurers December 2010 CONSULTATION PAPER: Proposed Risk-based Supervisory Framework (Final December 2010) Page 1 of

More information

China Life Insurance Co. Ltd.

China Life Insurance Co. Ltd. December 30, 2010 China Life Insurance Co. Ltd. Primary Credit Analyst: Eunice Tan, Hong Kong (852) 2533 3553; eunice_tan@standardandpoors.com Secondary Contact: Ryan Tsang, CFA, Hong Kong (852) 2533-3532;

More information

EIOPACP 13/011. Guidelines on PreApplication of Internal Models

EIOPACP 13/011. Guidelines on PreApplication of Internal Models EIOPACP 13/011 Guidelines on PreApplication of Internal Models EIOPA Westhafen Tower, Westhafenplatz 1 60327 Frankfurt Germany Tel. + 49 6995111920; Fax. + 49 6995111919; site: www.eiopa.europa.eu Guidelines

More information

Fair Value Measurement

Fair Value Measurement Indian Accounting Standard (Ind AS) 113 Fair Value Measurement (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type

More information

TERRA BRASIS RESSEGUROS. Sao Paulo, SP 04543-000, Brazil B++

TERRA BRASIS RESSEGUROS. Sao Paulo, SP 04543-000, Brazil B++ TERRA BRASIS RESSEGUROS Sao Paulo, SP 04543-000, Brazil Operating Company Composite TERRA BRASIS RESSEGUROS Av. Juscelino Kubitcheck, 1700, 12 Andar, Itaim Bibi, Sao Paulo, SP 04543-000, Brazil Web: www.terrabrasis.com.br

More information

Short-Term and Long-Term Rating Relationships

Short-Term and Long-Term Rating Relationships Short-Term and Long-Term Rating Relationships The following policy examines the rationale for DBRS s use of two different scales for rating shortand long-term obligations, the similarities and contrasts

More information

NET WORTH AND OTHER EQUITY ACCOUNTS

NET WORTH AND OTHER EQUITY ACCOUNTS Chapter 16 NET WORTH AND OTHER EQUITY ACCOUNTS TABLE OF CONTENTS NET WORTH AND OTHER EQUITY ACCOUNTS... 16. 1 Examination Objectives... 16-1 Associated Risks... 16. 1 Overview....16.2 Secondary Capital

More information

Risks and uncertainties

Risks and uncertainties Risks and uncertainties Our risk management approach We have a well-established risk management methodology which we use throughout the business to allow us to identify and manage the principal risks that

More information

EIOPA Risk Dashboard. March 2013 EIOPAFS13022

EIOPA Risk Dashboard. March 2013 EIOPAFS13022 EIOPA Risk Dashboard March 2013 EIOPAFS13022 Systemic risks and vulnerabilities On the basis of observed market conditions, data gathered from undertakings, and expert judgment, EIOPA assesses the main

More information

Best s Credit Rating Methodology provides a comprehensive explanation of A.M.

Best s Credit Rating Methodology provides a comprehensive explanation of A.M. A.M. BEST METHODOLOGY June 15, 2015 Introduction The Introduction to Best s Credit Rating Methodology (BCRM) contains an explanation of the purpose of the BCRM document, a description of the rating process,

More information

Chart 1 - Expense Rates. 0.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year

Chart 1 - Expense Rates. 0.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year Policies and Developments INVESTMENT PERFORMANCE OF LIFE INSURERS Introduction Life insurance has evolved over many decades from a pure risk insurance to whole life and endowment insurance and more recently

More information

GLOSSARY. a group of customers who share a common enterprise or social affinity or relationship

GLOSSARY. a group of customers who share a common enterprise or social affinity or relationship This glossary contains explanations of certain terms used in this prospectus in connection with the AIA Group and its business. These terms and their meanings may not always correspond to standard industry

More information

Capital Management Standard Banco Standard de Investimentos S/A

Capital Management Standard Banco Standard de Investimentos S/A Capital Management Standard Banco Standard de Investimentos S/A Level: Entity Type: Capital Management Owner : Financial Director Approved by: Board of Directors and Brazilian Management Committee (Manco)

More information

Rating Action: Moody's assigns A3 IFSRs to Atradius, negative outlook

Rating Action: Moody's assigns A3 IFSRs to Atradius, negative outlook Rating Action: Moody's assigns A3 IFSRs to Atradius, negative outlook Global Credit Research - 25 Oct 2012 London, 25 October 2012 -- Moody's Investors Service has assigned A3 insurance financial strength

More information

UBS Global Financials Conference

UBS Global Financials Conference UBS Global Financials Conference George Culmer, Group CFO Simon Lee, CEO International 11 May 21 AGENDA Overview George Culmer, CFO UK International Simon Lee, CEO International Emerging Markets Wrap up

More information

Understanding Participating Whole. equimax

Understanding Participating Whole. equimax Understanding Participating Whole Life Insurance equimax CLIENT GUIDE ABOUT EQUITABLE LIFE OF CANADA Equitable Life is one of Canada s largest mutual life insurance companies in Canada. For generations

More information

Solvency II Detailed guidance notes

Solvency II Detailed guidance notes Solvency II Detailed guidance notes March 2010 Section 1 - System of governance Section 1: System of Governance Overview This section outlines the Solvency II requirements for an effective system of governance,

More information

GUIDELINES ON CORPORATE GOVERNANCE FOR LABUAN BANKS

GUIDELINES ON CORPORATE GOVERNANCE FOR LABUAN BANKS GUIDELINES ON CORPORATE GOVERNANCE FOR LABUAN BANKS 1.0 Introduction 1.1 Good corporate governance practice improves safety and soundness through effective risk management and creates the ability to execute

More information