Caribbean Actuarial Conference Evaluating Life & Health Insurers in the Caribbean Islands. A.M. Best Company. Raj H. Shah, AVP Life & Health

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1 Caribbean Actuarial Conference 2008 Evaluating Life & Health Insurers in the Caribbean Islands A.M. Best Company Raj H. Shah, AVP Life & Health

2 A.M Best Company Overview Established in 1899 Providing the Public with Unbiased Financial Information for more than 100 Years Leading Worldwide Rating Agency Data Provider Publishing Company Began rating Property Insurers in 1906 Life Insurers in 1928 One of the ten recognized NRSROs 2

3 Objective of A.M. Best s Ratings Perform a constructive and objective role in the insurance industry toward the prevention and detection of insurer insolvency 3

4 A.M. Best Company Overview Full Service Rating Capabilities 4 FSR/ICR Public Debt Commercial Paper Other Insurance-related Transactions Life & P&C Affiliated Banks Managed Care HMO, Blue Cross/Blue Shield, Dental Alternative Markets Offshore/Alternative Risk Transfer Title Insurance Offices A.M. Best Company (Oldwick, NJ) A.M. Best Europe (London) A.M. Best Asia-Pacific (Hong Kong)

5 Users of A.M. Best Ratings Insurance/Reinsurance Companies Agents Brokers Regulators Policyholders Financial Institutions Investors Academics Consultants Captive/Alternative Risk Managers Debt and Equity Research Analysts Investment Professionals Corporate Risk Managers Government Agencies Employee Benefits Managers 5

6 Global Recognition A testament to the value of a Best s Rating is its market penetration. A.M. Best s Ratings reach: More than 150,000 insurance industry professionals via A.M. Best publications (BestWeek, Best s Review, BestDay and BestWire) Thousands of financial professionals worldwide via news vendors such as Reuters, Dow Jones and NewsEdge There are more than 11,000 companies in Best s Insurance Industry database Life/Health and P/C in U.S. & Canada International (life and non-life) Comprehensive website ( ½ million registered users 8,000 company reports available for purchase 6

7 A.M. Best Rating Primer Operating Insurance Co. Financial Strength Rating (FSR) A.M. Best s Financial Strength Rating is an opinion as to an insurer s ability to meet its ongoing obligations to policyholders. FSR to Credit Market Scale / ICR A.M. Best s Issuer Credit Rating (ICR) is an opinion as to the ability of the issuer to meet its ongoing senior financial obligations. ICR to Debt Notching / Holding Co. A.M. Best s Debt Rating is an opinion as to the issuer s ability to meet its ongoing financial obligations to security holders when due. 7

8 Best's Financial Strength Ratings Secure Ratings A++, A+ Superior A, A- Excellent B++, B+ Good Vulnerable Ratings B, B- Fair C++, C+ Marginal C, C- Weak D Poor E Under Regulatory Supervision F In Liquidation 8

9 A.M. Best s Rating Evaluation Balance Sheet Strength Operating Performance Business Profile Operating Issuer Credit Rating Financial Strength Rating (FSR) Holding Co/debt Ratings (ICR) 9

10 A.M. Best Rating Approach Evaluates all of the insurance and noninsurance business entities and attributes of an organization in an integrated manner Approach is both quantitative and qualitative Full analysis of company fundamentals Trend oriented Forward looking financial results are key 10

11 A.M. Best s Rating Evaluation Balance Sheet Strength Leverage Risk Adjusted Capitalization (Universal BCAR) Risk Management Capital Structure/Holding Company Quality/Soundness of Reinsurance Adequacy of Loss Reserves Quality/Diversification of Assets Liquidity Trend in Capitalization 11

12 12 Operating Performance: Major Considerations A.M. Best assesses operating performance on an absolute and relative basis Trends oriented NOG/NI remain a key factor Recurring vs. extraordinary earnings Earnings by major business segment Includes both quantitative and qualitative factors Volatility is a major consideration Projections are important Historical vs. prospective earnings

13 Business Profile: Core To Growth Business profile is determined by: Mix of business Competitive market position/peer analysis Depth and experience of management Access to capital markets Organic and M/A focus Drives current and future operating performance and may impact long-term financial strength 13

14 Caribbean Life/Health Industry Critical Rating Issues/Challenges Issues Life/Health Industry Landscape in Caribbean Countries Economic and Financial Environment Regulatory Environment Inflation and monetary conditions IFRS Compliance Country Risk Challenges Limited Investment opportunities Limited Growth Potential Evolving Demographics Narrow Product Offerings Industry Consolidation & Expansion Limited Players in L/H Industry 14

15 Country Specific Analysis The Bahamas Outlook: Stable Life insurance industry consolidation Growth opportunities, mostly in health and asset accumulation businesses Viable economic and political environment Strength of Local Currency Investment markets Adequate regulatory framework Rated companies ColinaImperial (A-/a-), Family Guardian (A-/a-), Atlantic Medical (A-/a-), Clico (Bahamas) Ltd (B/bb) 15

16 Country Specific Analysis Barbados Outlook: Stable Generally good capitalized life companies Stronghold in centre for offshore captives Stable and transparent country risk Improved socioeconomic presence Reliable regulatory framework Rated company - Sagicor Life (A/a) Ratings on several Canadian reinsurers 16

17 Country Specific Analysis Jamaica Outlook: stable Cautious perception based on legacy issues Low socio-economic environment Underdeveloped insurance sector Relatively low foreign exchange currency High inflation and interest rates Challenges with financial markets Consolidation continues Rated company - Sagicor Life of Jamaica (A/a), dominating player 17

18 Country Specific Analysis Trinidad & Tobago Outlook: Stable Largest economy in the West Indies Benefits of energy sector growth Growing medium-income demographics Good mix of life insurance and asset accumulation businesses Noticeable banking sector presence Limited investment opportunities in publicly traded securities Not subject to MCCSR but utilizes U.K. based solvency ratio Rated companies Guardian Life (A/a), CLICO (B++/bbb) A.M. Best rates several P/C companies 18

19 Country Specific Analysis Other Islands where A. M. Best has presence Bermuda Colonial Group (a-/a-), BF&M (a/a) Cayman Island Puerto Rico Several Life/P&C Companies Local ownerships vs. Foreign Investors Indebted emerging markets with public sector debt in several countries 19

20 A.M. Best s Rating Perspective - Bringing it all Together Balance Sheet strength is the most important including investment strategy Well-diversified, strong business profile ensures stability and profitability Sustained, stable operating profitability ensures future strength Depth, experience and stability of management influences profile Compliance and regulatory impact play an important role 20