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A.M. Best Indonesia Seminar 2015 Indonesia: Ready to embrace the next wave of change? 9 April 2015 The General Insurance Association of Indonesia (AAUI), Jakarta
RUNDOWN:
Time Agenda Speaker
MORNING SESSION
8:15 am Registration and light breakfast -
9:00 am
Opening remarks and introduction to A.M. Best
Dr Roger Sellek Chief Executive Officer A.M. Best – EMEA & Asia-Pacific
9:15 am
Keynote address
Dr Firdaus Djaelani Chief Executive of Non-Bank Financial Institutions Supervisor Indonesia Financial Services Authority (OJK)
9:30 am
Rating and regulation
Dr Roger Sellek Chief Executive Officer A.M. Best – EMEA & Asia-Pacific
9:55 am
The CEO’s influence on ratings outcome
Mr Moungmo Lee General Manager, Analytics A.M. Best – Asia-Pacific
10:20 am Coffee break -
10:45 am
Utilisation of reinsurance by non-life insurers in Indonesia
Mr Chi-Yeung Lok Senior Financial Analyst A.M. Best Asia-Pacific (Singapore) Pte. Ltd
11:05 am
Panel discussion: Indonesia: Ready to embrace the next wave of change?
Dr Frans Y. Sahusilawane President Director PT. Reasuransi Indonesia Utama (Persero) Mr Jeff Malatskey Head Of Insurance Practice Ernst & Young Mr Richard Austen Chairman Reinsurance Brokers Association of Singapore (RBAS) Mr Wayan Pariama Vice Chairman The General Insurance Association of Indonesia Asosiasi Asuransi Umum Indonesia (AAUI) Ms Susanna Lam (Moderator) Managing Director A.M. Best – Asia-Pacific
12:20 pm Luncheon
AFTERNOON SESSION
13:45 pm Registration -
14:00 pm
A.M. Best rating methodology and rating process
Mr Moungmo Lee General Manager, Analytics A.M. Best – Asia-Pacific
14:45 pm
Mock rating committee
Mr Moungmo Lee General Manager, Analytics A.M. Best – Asia-Pacific Mr Jeff Yeung Associate Director, Analytics A.M. Best Asia-Pacific Ltd Mr Chi-Yeung Lok Senior Financial Analyst A.M. Best Asia-Pacific (Singapore) Pte. Ltd
16:00 pm
Closing address
Dr Roger Sellek Chief Executive Officer A.M. Best – EMEA & Asia-Pacific
1
Opening remarks and introduction to A.M. Best / Rating and regulation
Dr Roger Sellek Chief Executive Officer A.M. Best – EMEA & Asia Pacific
Roger Sellek is based in London and oversees A.M. Best’s ratings, information-services and news businesses throughout Europe, the Middle East, Africa and the Asia-Pacific region. Prior to joining A.M. Best, Roger was Commercial Director for Lloyd’s of London for six years, responsible for the market’s strategic business relationships with its investor base, brokers, the rating agencies and the financial-analyst community. Shortly after joining Lloyd’s, Roger was appointed Head of Commercial Policy and subsequently became Managing Director of Lloyd’s Market Risk Unit, where he directed the development and application of the market’s risk-based capital system. He had earlier worked as a consultant to the Equitas Project, assuming management responsibility for the analysis of all non-APH liabilities. In addition to 15 years of extensive experience and achievement in the insurance and reinsurance sectors, Roger has a long academic background, graduating with a BSc in mathematical physics from the University of Exeter and with a PhD three years later. Roger also holds an MBA in strategic management from Imperial College at the University of London and carried out post-doctoral research at the University of Cambridge. He has worked in a number of academic positions in the United Kingdom and overseas, including as a lecturer in applied mathematics at the University of Sydney, Australia. He also spent two years as the National Squash Coach for Thailand.
2
Keynote address Dr Firdaus Djaelani Chief Executive functioning as Non-Bank Financial Institutions Supervisor Indonesia Financial Services Authority (OJK)
Firdaus Djaelani started his civil servant career as a staff at Ministry of Finance in 1981. Born in Jakarta in December 1954, he was once in charge as member or head of operational team for various researches and preparation of law making, such as insurance law, pension fund law, law on OJK, law on Deposit Insurance Corporation (LPS), anti-money laundering act, and many more. The 1993 alumnus of Management, Faculty of Economics at University of Indonesia, who is experienced as regulator as well as industry player in banking sector and non-bank sector (particularly insurance), was appointed as Director of Directorate of Insurance at Directorate General of Financial Institutions (DLJK), Ministry of Finance, from 2000 to 2006. He was once in charge as Director of Insurance and Risk Management at LPS from 2005 to 2008. The Master’s degree holder in economics from Ball State University in Indiana, U.S., was then promoted as member of LPS Board of Commissioners concurrently as LPS Chief Executive from 2008 to April 2012. Firdaus gained doctoral degree from Gadjah Mada University in 2012 and is active as Head of Indonesia Senior Executive Association (ISEA), takes part in ISEI management, and performs as Advisor of Sharia Economic Community since 2009. Previously, he was a member of Expert Board of Indonesian Association of Muslim Intellectuals or ICMI (2006-2011), Deputy Head of Civil Society Association (2002-2006), and was on leadership of Betawi Consultative Body (1982-1990). Firdaus Djelani was enacted as member of OJK Board of Commissioners based on Presidential Decree No. 67/P of year 2012. He was inaugurated and sworn in before Chief Justice of Supreme Court for 2012-2017 term of office.
3
The CEO's influence on ratings outcome / A.M. Best rating process and rating methodology / Mock rating committee
Moung Mo Lee General Manager, Analytics A.M. Best – Asia-Pacific
Moung Mo Lee is the general manager of analytics at A.M.Best Asia-Pacific (Singapore) Pte. Ltd. Moung Mo has been with A.M. Best since 2000. He is responsible for the analytics of A.M. Best’s ratings in the Asia-Pacific region. Prior to assuming his current role, Moung Mo served as the lead analyst for numerous companies in A.M. Best’s Asia-Pacific portfolio. Before joining A.M. Best, Moung Mo worked for Siemens AG and Hypo Bank in Germany. Moung Mo received his bachelor’s degree in economics from Chung Ang University and his master’s in economics from Seoul National University.
4
Utilisation of reinsurance by non-life insurers in Indonesia /
Mock rating committee Chi-Yeung Lok Senior Financial Analyst A.M. Best Asia Pacific (Singapore) Pte. Ltd Chi Yeung Lok is a Senior Financial Analyst at A.M. Best Asia Pacific (Singapore) Pte. Ltd. Chi Yeung has been with A.M. Best since 2010. His portfolio of rated clients includes insurance companies in South and South East Asia as well as Australia and New Zealand. Chi Yeung previously worked with Potomac Capital and KPMG in Hong Kong, as well as with Allianz and Deutsche Bank in Germany. Chi Yeung graduated with a joint degree in Chinese and Economics from the University of Leeds in the United Kingdom and a Masters in Financial Management from the Rotterdam School of Management, Erasmus University, in the Netherlands.
5
Panel discussion Indonesia: Ready to embrace the next wave of change?
Dr Frans Y. Sahusilawane President Director PT Reinsurance Indonesia Utama (Persero) Frans joined PT Asei Reinsurance Indonesia (Persero) as President Director in October 2014. In January 2015, the company changed its name to PT Reinsurance Indonesia Utama (Persero), abbreviated Indonesia Re. Until 2015, Frans has 40 years of working experience in the world of insurance. For 19 years from 1975 to 1993, Frans worked at PT (Persero) General Reinsurance Indonesia (UmumRe) - which changed its name to Indonesia Re, starting from staff positions until he is Head of the Division, before moving to Tugu Pratama in early 1994. Ten months later, the government asked him to return again to Indonesia Re as Director in November 1994, together with B. Munir Sjamsoeddin. Two years later, they both established PT Reinsurance International Indonesia (ReIndo) as a subsidiary of Indonesia Re who took over the portfolio of Indonesia Re since January 1, 1997. Frans also served as Technical Director of PT Tugu Reinsurance Indonesia - Tugu Re (1998-2000) and then President Director at Tugu Re (2000-2008), and was President Director of PT Asuransi MAIPARK Indonesia - PT Reinsurance MAIPARK Indonesia (2008-2014). In the field of insurance industry organizations, Frans served as Head of Reinsurance in Indonesian Insurance Council (DAI) from 1996 to 2002. When the General Insurance Association of Indonesia (AAUI) was formed in 2002, he was elected as Chairman, a position that he held for two terms (2002-2008). After 2008 until now, Frans has served as a Member of the Board of Trustees in AAUI. From 2003 to present, Frans has become the Honorary Chairman of the Council Code of Ethics in the Insurance Management Association of Indonesia (AAMAI). Before that from 1993 to 2003, Frans was Vice Chairman of the Board AAMAI. Frans earned a Master of Business Administration from De Montfort University, Leicester, England, UK, and his PhD in Strategic Management from the Faculty of Economics, University of Indonesia, Chairman of the Managing Board of Special Risk Insurance Consortium (KARK).
6
Panel discussion Indonesia: Ready to embrace the next wave of change?
Jeff Malatskey Insurance Practice Leader, Asia Ernst & Young
Background Jeff Malatskey is Insurance Practice Leader, Asia and is located in the Hong Kong office where he leads their local practice and is responsible for assurance services to major insurance industry clients of Ernst & Young. Jeff represents the Asian Pacific Region on Ernst & Young's global insurance assurance panel. Jeff joined Ernst & Young in 1987 and has been based in Hong Kong office since 2007. From 1987 to 2006, Jeff was based in Ernst & Young’s Sydney office. Jeff qualified as a Chartered Accountant in South Africa, and is also an Australian Chartered Accountant. Jeff is a member of the institute of chartered accountants in Australia. Professional experience Jeff has 34 years audit experience of which 26 have been spent in financial services across a range of areas including life/P&C insurance, investment management, funds management, brokers/distribution and property. In that time he has worked on a number of the firm’s global clients and his roles have included regional responsibilities for some of these. His current client portfolio comprises life insurers, general insurers and brokers. Jeff’s current assurance engagements include Client service executive responsible for Manulife and Generali in the region, and Liberty Mutual, Chubb /Federal and Starr. Jeff also acts as Quality Review Partner on a number of insurance engagements. Jeff also has client relationship responsibility for a number of major multinational insurers and in that role leads and/or ensures the quality delivery of EY’s advisory services to those insurers. Jeff’s past Australian experience included serving the ING Group in Australia; Engagement partner for MLC Funds Management Services, AMP Investment Management, UBS Asset Management and Austbrokers Ltd. Jeff has also served a number of Australian general insurers in previous years including Mercantile Mutual Insurance (Australia) Ltd, AMP General Insurance Company Ltd, Chubb Insurance, and Liberty Mutual. Jeff’s past Australian experience also included Financial and Regulatory Reporting for funds/asset management companies and as compliance auditor for a number of major financial service providers.
7
Panel discussion Indonesia: Ready to embrace the next wave of change?
Richard N C Austen Chairman Reinsurance Brokers Association of Singapore (RBAS)
Mr Austen started his career at Lloyd’s of London in 1972 for Thompson Graham Ltd which was renamed Jardine Thompson Graham. He became actively involved in Asian reinsurance business in 1974. His love for the region led him to move to Singapore in 1982 where he incorporated Singapore’s first regional reinsurance broking business. Adopting Singapore and Asia as his home, Mr Austen has travelled extensively in Asia in pursuit of delivering reinsurance solution to clients. He has served on many industry committees and spoken at numerous reinsurance conferences. After 30 years of insurance and reinsurance broking services in Asia with Jardines, in 2003 he joined Arthur J Gallagher to develop their broking business in Asia. Subsequently, with the global sale of Gallagher’s reinsurance operations, Mr Austen led the local management team to complete a management buy-out in January 2008 and rebranded the company “Asia Reinsurance Brokers Pte Ltd (ARB)”. Mr Austen is Chief Executive Officer of Asia Reinsurance Brokers Pte Ltd, Chairman of the Reinsurance Brokers’ Association, Singapore, a founding partner of Catalytics Pte Ltd and a member of the organising committee of the Singapore International Reinsurance Conference.
8
Panel discussion Indonesia: Ready to embrace the next wave of change?
Wayan Pariama Vice Chairman The General Insurance Association of Indonesia Asosiasi Asuransi Umum Indonesia (AAUI) Wayan has developed a career in the insurance industry for almost 19 years since 1995. He started at PT. Asuransi Astra Buana in 1995 until 2003 with various positions. Wayan then joined ADIRA Insurance in 2003 as a division head and was promoted as Deputy Director. Within that period of time, besides working as an Underwriter, Wayan also involved in marketing, technical, internal control and claim. From 2014 until now, Wayan has become a member of Board of Director of ADIRA Insurance. Wayan completed Bachelor of Business, major in Accounting and Information Technology in Swinburne University of Technology, Melbourne, Australia and Glasgow Caledonian University, Glasgow, United Kingdom, for Associateship of Chartered Insurance Institute (ACII). Wayan took lessons at Executive Leadership Program at Insead Business School, Singapore. Wayan also sits as Vice Chairman of AAUI, Head of Agency Division, Head of the Department of Motor Vehicle Line Department AAUI and Member of OJK’s Tariff Team.
9
Panel discussion Indonesia: Ready to embrace the next wave of change?
Susanna SW Lam Managing Director A.M. Best – Asia-Pacific Susanna Lam is the managing director of A.M. Best Asia-Pacific Ltd., where she leads A.M. Best’s operations throughout the Asia-Pacific region. Susanna oversees the ratings and news businesses of A.M. Best within the insurance and reinsurance sectors in the region, managing existing relationships and developing new relationships with key constituents in the insurance and broader financial services sectors. As a member of the Board, Susanna is responsible for ensuring that the compliance and regulatory requirements of the business are fulfilled. Susanna has over 30 years’ experience in the reinsurance and insurance industry and is the former general manager – reinsurance department of Ping An Property & Casualty Insurance Company of China, Ltd, where, based in Ping An’s Shenzhen headquarters, she managed the company’s outwards and inwards reinsurance portfolios and headed both the treaty and facultative divisions. Prior to Ping An, Susanna was the director and general manager of Miller Insurance Services (Hong Kong) Ltd, where she set up their Hong Kong office and was responsible for developing and producing business in North Asia. Susanna was also formerly with Swiss Re, where she worked in the company’s Hong Kong and Sydney offices. Susanna holds an ACII qualification and a master degree in business administration from The University of New South Wales, Australia.
10
Jeff Yeung Associate Director A.M. Best Asia-Pacific Ltd
Jeff Yeung is an associate director at A.M. Best Asia-Pacific Ltd. Jeff joined A.M. Best in 2011. Prior to joining A.M. Best, Jeff held the role of senior pricing actuary at Gen Re in Sydney. He has worked in Gen Re’s Hong Kong and Cologne, Germany, offices as well. He has more than 10 years of experience in the property and casualty reinsurance industry in markets that include Australia, Germany and China. Jeff is a Fellow of the Casualty Actuarial Society, Fellow of the Institute of Actuaries of Australia and RMS Certified Catastrophe Risk Analyst. He is a member of the Casualty Actuarial Society Committee on Reinsurance Research. He received his BS in Actuarial Science from the University of Hong Kong.
Mock rating committee
11
Disclaimer© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB’s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations topurchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address thesuitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, market value risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must be weighed solely as one factor in any investment or purchasing decisionmade by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.
A.M. Best Asia-Pacific Ltd is registered as a Credit Rating Agency in Australia and holds a Financial Services Licence number 411055 under the Corporations Act of 2001.
A.M. Best Asia-Pacific Ltd credit ratings and any other related research are not intended for and must not be distributed to any person in Australia other than a wholesale client, as defined in the Corporations Act of 2001, Chapter 7. The A.M. Best websitesare not intended for use by Australian users who are not defined as wholesale users.
2A.M. Best Indonesia Seminar 2015 9 April 2015
12
Discussion outline
3A.M. Best Indonesia Seminar 2015 9 April 2015
Introduction to A.M. Best
Rating and regulation
The CEO’s influence on ratings outcome
Utilisation of reinsurance by non-life insurers in Indonesia
Panel discussion
Feedback
Introduction to A.M. Best
4A.M. Best Indonesia Seminar 2015 9 April 2015
Dr Roger SellekChief Executive Officer
A.M. Best EMEA & Asia-Pacific
13
Corporate strategy
5
• Continue specialist focus on the (re)insurance sector
• Support growth of insurance industry in emerging markets
• Develop rating methodologies to respond to new risk transfer structures and sources of industry capital
• Explore opportunities to develop information/data business
• Build optimal operating structure through regional hub locations
A.M. Best Indonesia Seminar 2015 9 April 2015
A.M. Best Current Corporate Structure
A.M. Best Indonesia Seminar 2015
A.M. Best CompanyOldwick, New Jersey, USA
Europe
A.M. Best Rating Services
&A.M. Best Information
ServicesLondon
MENA Latin AmericaAsia Pacific
A.M. BestDubai
A.M. BestHong Kong
A.M. BestSingapore
A.M. BestMexico City
focus on Greater China, Japan & Korea
focus on SE Asia, ANZ
9 April 2015 6
14
Comparison of ratings coverage –global insurer interactive FSRs
A.M. Best Indonesia Seminar 2015
A.M.Best3481
S&P1547
Fitch788 Moody's
723
Source: A.M. Best, Moody’s and Fitch’s websites and S&P’s Ratings Direct. Data as of January 2015.
Does not include PD ratings, NR ratings, “National” ratings, rated companies who are branches of a parent (Canada, Japan, New Zealand and U.S.), or companies who are under regulatory supervision or in liquidation.
79 April 2015
ASIA-PACIFIC
150
Best’s global ratings coverageExcluding USA and Canada
Western Europe
EasternEurope
Middle EastAsia
Oceania
Africa
Latin America & Caribbean
Bermuda
Interactive rating relationships with insurers/reinsurers in over 80 countries worldwide
A.M. Best Indonesia Seminar 2015 9 April 2015 8
15
Methodology & Research
9 April 2015 9
Research
Indonesia Non-Life Market Review: Risk Based Capital Impacts from Reinsurance Asset Leverage in Indonesia- 31 March 2015
Market Prospects Improve for Insurers Ahead of ASEAN Integration - 6 October 2014
ASEAN Non-Life & Life Market Review: Capitalizing on the Benefit and Opportunity in an ASEAN Open Market - 31 March 2015
(Global Re) How Relevant Is The Underwriting Cycle? - 8 September 2014
The "Grey" Swans: A.M. Best's Ratings Approach to the Top 10 Threats - 8 December 2014
Insurance Markets Advance as ASEAN Countries' Economies Grow - 9 June 2014
Asia-Pacific M&A Seen as More Balanced, Driven by Value Creation - 24 November 2014
Asia-Pacific Reinsurance - Segment Review. Asia's Reinsurers Are Looking to Grow Again - 2 September 2013
Methodology for the Indonesian Insurance Market
A.M. Best Ratings on a National Scale - 5 September 2014 Evaluating Country Risk - 2 May 2012
Rating Reinsurance Pools - 2 August 2013 Takaful (Shari'a Compliant) Insurance Companies - 10 January 2012
Risk Management and the Rating Process for Insurance Companies - 2 April 2013
Catastrophe Analysis in A.M. Best Ratings - 3 November 2011
A.M. Best Indonesia Seminar 2015
Awards & Recognition
Read more about our awards and achievements at: www.ambest.com/ratings/awards.html
A.M. Best Company, Inc. (AMB) Regulatory Registrations and RecognitionsFor a comprehensive profile of our regulatory registrations around the world, please visit
http://www.ambest.com/nrsro/index.html
A.M. Best Indonesia Seminar 2015
2009 - 2014
6
9 April 2015
A.M. Best also named
“International Best Ratings Agency”by The International Takaful Awards
10
16
Rating and regulation
11A.M. Best Indonesia Seminar 2015 9 April 2015
Dr Roger SellekChief Executive Officer
A.M. Best EMEA & Asia-Pacific
9 April 2015A.M. Best Indonesia Seminar 2015 12
Importance of credit quality in Developing insurance markets
Key role of reinsurance as facilitator of growth
Developing insurance markets are generally heavily reliant on reinsurance (counterparty) support
Focus on counterparty credit quality
Sharpened focus on counterparty credit will continue to embed ratings in the financial fabric of the insurance and reinsurance sectors
Ratings becoming enshrined in legislation
Ratings are increasingly becoming enshrined in insurance legislation around the region as regulatory regimes evolve and their sophistication increases – runs counter to G20/FSB intentions
17
Growing risk exposure in Asia-Pacific
9 April 2015A.M. Best Indonesia Seminar 2015 13
Dev
elo
pm
ent
and
gro
wth
Time
Coverage Growth
Risk Growth
Economic Growth
Risk exposure exceeds coverage
Premium growth
exceeds GDP growth
9 April 2015A.M. Best Indonesia Seminar 2015 14
2005-2009Five years total of yearly top
10 global catastrophe insured losses = US$141.2 billion
2010-2014Five years total of yearly top
10 global catastrophe insured losses = US$208.4 billion
Source: Swiss Re SIGMA report
Growing risk exposure in Asia-Pacific
Asia$52.5 billion
25%
Australasia$25.8 billion
12%
Europe$16.0 billion
8%
North America$104.5 billion
50%
Latin America & South America$9.7 billion
5%
Asia$5.8 billion
4%
Australasia$2.4 billion
2%
Europe$22.5 billion
16%
North America$110.6 billion
78%
18
Regulation – capital requirements
159 April 2015A.M. Best Indonesia Seminar 2015
^ C-ROSS in transition stageSource: Insurance regulators, insurance associations
“Solvency I” capital requirement Risk-based capital (RBC) requirement
0
20
40
60
80
100
120
140
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Number of non‐life direct insurers
Minim
um cap
ital req
uirem
ents (USD
million)
Number of non‐life direct insurers and minimum capital requirements in Asia‐Pacific markets
Minimum capital requirement (USD mil) number of nonlife insurers
Ratings in insurance regulation (1)
Minimum rating requirements on reinsurers have been imposed by regulators in some territories
• 100% capital charge is applied to unsecured reinsurance recoverablesfrom foreign reinsurer with rating lower than a‐
Australia
• Under C‐ROSS, capital charge of over 80% is applied to uncollateralized retrocession recoverables from foreign retrocessionaires with rating lower than bbb‐
China ^
• Insurers should place reinsurance with foreign reinsurers with a minimum rating of bbb
India
• Overseas reinsurance companies reinsuring Indonesian business should have a minimum rating of bbb *
Indonesia
• minimum ratings for international reinsurers is A.M. Best financial strength rating (FSR) of B+ or equivalent
• Foreign reinsurers accepting 10% or more in any reinsurance contract must have a minimum rating of bbb
Vietnam
* Higher risk charges will otherwise be appliedRisk‐based capital (RBC) requirement
“Solvency I” capital requirement
9 April 2015A.M. Best Indonesia Seminar 2015 16
Taiwan
^ C‐ROSS in transition stage
19
Ratings in insurance regulation (2)
Ratings of reinsurers are used in calculating insurers’ counterparty risk in many regulatory solvency requirements
* Note: the Australian risk charges for unsecured RI recoverables from foreign reinsurers are not shown in the chart# Note: risk charges for lower than bbb rating categories can be higher than the values indicated in the chart
179 April 2015A.M. Best Indonesia Seminar 2015
0%
5%
10%
15%
20%
25%
aaa aa a bbb lower thanbbb #
Australia ‐ APRA authorisedreinsurer *
Australia ‐ foreign reinsurer,secured RI recoverables *
Malaysia
New Zealand
Korea
Thailand
Rating in insurance regulations
New ZealandAll insurers* are required to obtain a financial strength rating from an
approved rating agency**
SingaporeMAS takes into account applicant’s credit rating by an international rating agency in assessing license
application
Rating is becoming an increasingly important factor that regulators consider in assessing insurance license applications
* Exemptions for small insurers with GPW below NZD 1.5 million, reinsurers, captive insurers, crown entities** A.M. Best Asia‐Pacific Ltd was first CRA to be approved in New Zealand on 15 April 2010
9 April 2015A.M. Best Indonesia Seminar 2015 18
20
Conclusions (1)
9 April 2015A.M. Best Indonesia Seminar 2015 19
International rating scale
Key input into "policyholder and other stakeholder decision making"
Provides financial due diligence on
insurers
Conclusions (2)
9 April 2015A.M. Best Indonesia Seminar 2015 20
… foster a transparent and open business
environment
… encourage greater
corporate accountability
… are a valued
independentsource of
detailed and comparable information
… leading to stronger and
healthier insurance markets
Ratings…
There is a naturally symbiotic relationship between regulation and ratings that can exert strong positive influences on the evolution of international insurance markets
21
The CEO’s influence on ratings outcome
21A.M. Best Indonesia Seminar 2015 9 April 2015
MM LeeGeneral Manager - Analytics
A.M. Best Asia-Pacific
22
Balance SheetStrength
Operating Performance
Business Profile
Enterprise Risk Management
+ Country Risk
Rating
Insurance Company Financial Strength
Key rating components
A.M. Best Indonesia Seminar 2015 9 April 2015
22
Integration of the CEO into the rating process
23
Company Rating Proposal
Peer Analysis / Industry
Composite
Capital Adequacy
Enterprise Risk Management
CEO & Management
Team
Country Risk
Industry Trends & Analysis
A.M. Best Indonesia Seminar 2015 9 April 2015
Factors in the rating process
24
Qualitative aspects
Operating performance
Balance sheet strength
Historical ProspectiveCurrent
A.M. Best Indonesia Seminar 2015 9 April 2015
23
Importance of the rating management meeting
25
• The rating decision is not reached during the management meeting
• However, it is the one contact point where:
– The CEO and the senior team can show-case their company
– The analysts can get first-hand exposure to the team that is running the company
A.M. Best Indonesia Seminar 2015 9 April 2015
CEO engagement
26
• CEO needs to . . .
– be involved not only in the rating process, but also the management meeting itself
– provide guidance and direction – shouldn’t run the process
– understand key points of the rating process
– be aware of issues for and within the company that can influence the rating
A.M. Best Indonesia Seminar 2015 9 April 2015
24
Engagement - examples
27
INVOLVEMENT
PROVIDINGDIRECTION
COMPANY KNOWLEDGE
RATING PROCESS
BEST PRACTICE
• Not involved in preparation for the meeting
• Not present at management meeting
• Leads pre-meeting preparation• Delegates preparation for the
meeting • Leads management meeting
• Has limited input on direction• Is shown items to be presented
just prior to the meeting
• Receives frequent updates on communication with the CRA
• Sets tone of communication
• Is unfamiliar with key performance indicators
• Has no decision-making input to key activities e.g. investment strategy
• Has limited understanding of rating process
• Understands rating process and manages it to present company in best possible light
• Deep knowledge of company’s key financial metrics
• Able to demonstrate control of key company activities
A.M. Best Indonesia Seminar 2015 9 April 2015
Managing rating communication
28
• CEO needs to . . .
– define clear communication strategy with the CRA
– manage pro-actively the communication with the CRA. Ensure key information is delivered in a timely fashion
– admit and address shortfalls in company performance rather than ignore issues
– allow strengths of senior-management team to be evidenced
A.M. Best Indonesia Seminar 2015 9 April 2015
25
Managing rating communication -examples
29
BEST PRACTICE
COMMSSTRATEGY
PRO-ACTIVEMANAGEMENT
MANAGINGSHORTFALLS
INVOLVING SNR MGT
• There is none • Identifies person responsible to communicate with CRA
• Sets communication tone
• CEO and company react only when asked by the CRA
• Ensures that CRA is provided with relevant updates on timely basis
• Refuses to acknowledge performance / operating shortfalls
• CEO personally communicates all company developments
• Exhibits depth of expertise by allowing senior management to communicate developments in their respective areas
• Recognises main shortfalls, accepts them and communicates corrective action
A.M. Best Indonesia Seminar 2015 9 April 2015
Embedding ERM
30
• CEO expected to . . .
– identify and establish credible Risk Management (RM) function
– contribute to identifying risk appetite and ensure buy-in from staff at all levels of the organisation
– ensure there are clear RM responsibilities for senior management and CRO
CRO should have easy access to CEO and BoD
– drive clear communication of risk appetite throughout entire organisation
– demonstrate link between RM and performance-based remuneration
A.M. Best Indonesia Seminar 2015 9 April 2015
26
Defining ERM best practice -examples
31
BEST PRACTICE
CREDIBLERM
RMRESPONSIBILITIES
RISKAPPETITE
COMMS &REWARDS
• No RM function• CRO having dual responsibilities e.g.
CRO and CFO
• RM function established and adequately staffed
• CRO in place with relevant experience
• Only some members of staff have risk-related responsibilities e.g. Chief Underwriter has combined-ratio target
• Risk responsibilities identified for all employees
• Responsibilities linked to risk appetite• CRO monitors and controls risk-
related performance
• No risk appetite defined• Risk appetite defined purely as
underwriting performance
• ERM and risk appetite confined to senior management
• No link to remuneration
• All members of staff are aware of their risk targets
• Performance of at least senior management linked to achieving risk-adjusted returns
• Clearly defined appetite specifying capital and income at risk at given points in time
A.M. Best Indonesia Seminar 2015 9 April 2015
The CEO’s influence
32
• Greater credibility will be given if the CEO has a track record of meeting financial forecasts
• Reputation and past experience of the CEO plays a major role in building confidence in the forecasts provided
• Even if the company has a track record of not meeting forecasts, confidence can be achieved if the CEO admits the shortcomings in the past and discusses how underperformance has been addressed
• In many cases the credit to CEO is conveyed in the press release through an expression such as: ‘The ratings reflect sound capitalization, improved performance and experienced management.’
A.M. Best Indonesia Seminar 2015 9 April 2015
27
Summary: CEO and the rating outcome
33
• The CEO and his/her management team is critical to the rating
• Involvement in the rating process and management meeting(s) is essential
• Most successful CEOs influence the rating outcome indirectly through the performance of their company and their team
• In rare cases the departure of a CEO can result in a downgrade or negative outlook
A.M. Best Indonesia Seminar 2015 9 April 2015
Utilisation of reinsurance by non-life insurers in Indonesia
34A.M. Best Indonesia Seminar 2015 9 April 2015
Chi Yeung LokSenior Financial Analyst
A.M. Best Asia-Pacific (Singapore) Pte. Ltd
28
Agenda
9 April 2015 35
• Utilisation of reinsurance by non-life insurers in Indonesia
• Managing reinsurance assets: why it matters
• Impact on capital ratios under different scenarios
A.M. Best Indonesia Seminar 2015
Premium retention of Indonesian non-life insurers relative to neighbouring markets
9 April 2015 36
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013
Malaysia Singapore Indonesia Philippines
Indonesia and Philippines cede a relatively high proportion of gross premiums for reinsurance protection
A.M. Best Indonesia Seminar 2015
Source: Bank Negara Malaysia, Monetary Authority of Singapore, Otoritas Jasa Keunangan, The Insurance Commission, Philippines
29
Reinsurance utilisation varies by line of business
9 April 2015 37
• Direct non-life insurers with larger property and commercial portfolios likely have higher reinsurance leverage
• Managing reinsurance leverage is of greater importance for such insurers
-
2
4
6
8
10
12
14P
rem
ium
s in
ID
R T
rillio
n Gross Premiums Net Premiums
2013 Gross and Net Premiums by LoB
Source: Otoritas Jasa Keunangan, Statistik Perasuransian 2013
A.M. Best Indonesia Seminar 2015
Average reinsurance leverage of selectedIndonesian non-life direct insurers in 2013
9 April 2015 38
0%
20%
40%
60%
80%
100%
120%
Average RI Assets / Capital Average Net RI Assets / Capital
• Average of around 1x may not appear high
• However this measure could be higher after a large catastrophe
Source: Company financial statements, regulatory filings
A.M. Best Indonesia Seminar 2015
30
Agenda
9 April 2015 39
• Utilisation of reinsurance by non-life insurers in Indonesia
• Managing reinsurance assets: why it matters
• Impact on capital ratios under different scenarios
A.M. Best Indonesia Seminar 2015
575%
100%
542%
100%
80%
100%
Reinsurance Gearing - Selected Thai NL Insurers
Capital - Selected Thai NL Insurers
Reinsurance Gearing - Selected NZ NL Insurers
Capital - Selected NZ NL Insurers
Reinsurance Gearing - Selected Indonesian NL Insurers
Capital - Selected Indonesian NL Companies
High reinsurance leverage needs to be well managed
9 April 2015 40
For an insurer with high reinsurance leverage, any unfavourable change in reinsurer balances could have an disproportionate impact on capital, capital requirements and RBC ratio
Source: Company financial statements, regulatory filings
Indonesia average (Pre Catastrophe)
New Zealand, 2010/11 EQ
Thailand Flood, 2011
A.M. Best Indonesia Seminar 2015
31
Pre and Post CAT Reinsurance leverage –experience of selected regional non-life insurers
9 April 2015 41
Source: Company financial statements, regulatory filings
Reinsurance leverage and related capital requirements could spike after a catastrophe event and take years to return to pre-catastrophe levels
A.M. Best Indonesia Seminar 2015
0
1
2
3
4
5
6
7
Pre CAT Post CAT
Net
Rei
nsu
ran
ce B
alan
ces
/ Cap
ital
(T
imes
)
Thailand - 2011 Flood
New Zealand - 2010/11 EQ
Philippines - 2013 Typhoon Yolanda
Indonesia 2013 Average
0%
50%
100%
150%
200%
250%
(a) (b) (c ) (d) (e ) (f) (g) (h) (i) (j) (k) (l)
RI Assets / CapitalNet RI Balances / CapitalAverage
2013 reinsurance leverage of selected Indonesian non-life insurers
9 April 2015 42
While average reinsurance leverage is at around 1x there is a wide variation across Indonesian non-life insurers
Source: Company financial statements, regulatory filings
A.M. Best Indonesia Seminar 2015
32
Agenda
9 April 2015 43
• Utilisation of reinsurance by non-life insurers in Indonesia
• Managing reinsurance assets: why it matters
• Impact on capital ratios under different scenarios
A.M. Best Indonesia Seminar 2015
2013 BCAR selected Indonesian insurers –Average level of reinsurance assets (80% capital)
9 April 2015 44A.M. Best Indonesia Seminar 2015
a- , 100%
a- , 75%
NR, 25%
a-75%
bb-25%
a- , 94%
bb-, 6%
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
310%
231%
282%303%
(C)(D)
NR = non-rated
(A)
(B)
33
9 April 2015 45A.M. Best Indonesia Seminar 2015
a- , 100%
a- , 75%
NR, 25%
a-75%
bb-25%
a- , 94%
bb-, 6%
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
2013 BCAR selected Indonesian insurers –2x average level of reinsurance assets
310%
231%
282%303%
260%
142%
208%
246%
Average reinsurance asset level 2x average reinsurance asset level
NR = non-rated
(A)
(B)
(C)(D)
9 April 2015 46A.M. Best Indonesia Seminar 2015
a- , 100%
a- , 75%
NR, 25%
a-75%
bb-25%
a- , 94%
bb-, 6%
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
2013 BCAR selected Indonesian insurers –3x average level of reinsurance assets
310%
231%
282%303%
208%
92%
149%
190%
Average reinsurance asset level 3x average reinsurance asset level
NR = non-rated
(A)
(B)
(C)(D)
34
9 April 2015 47A.M. Best Indonesia Seminar 2015
a- , 100%
a- , 75%
NR, 25%
a-75%
bb-25%
a- , 94%
bb-, 6%
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
Assumed credit quality of reinsurance assets
2013 BCAR selected Indonesian insurers –Reinsurance assets = 5.75x of capital
310%
231%
282%303%
82%
28%50%
71%
Average reinsurance asset level Reinsurance assets = 5.75x capital
NR = non-rated
(A)
(B)
(C)(D)
Summary
9 April 2015 48
• Reinsurance asset risk - varies by line of business and insurer- has disproportionate capital impact if it is high
• For the time being, reinsurance asset risk appears moderate for the average insurer, however
- there is wide variation among insurers- post-catastrophe level needs to be considered, especially for insurers
that already have a higher than average reinsurance asset leverage ratio in a pre-catastrophe scenario
• On average, capital impact of higher cessions to national reinsurers appears manageable. However the capital impact will increase
- with continued growth in exposure, insurance penetration and density - for insurers with a higher than average amount of reinsurance assets- a rating is better than no rating
A.M. Best Indonesia Seminar 2015
35
Disclaimer© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB’s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations topurchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address thesuitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, market value risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must be weighed solely as one factor in any investment or purchasing decisionmade by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.
A.M. Best Asia-Pacific Ltd is registered as a Credit Rating Agency in Australia and holds a Financial Services Licence number 411055 under the Corporations Act of 2001.
A.M. Best Asia-Pacific Ltd credit ratings and any other related research are not intended for and must not be distributed to any person in Australia other than a wholesale client, as defined in the Corporations Act of 2001, Chapter 7. The A.M. Best websitesare not intended for use by Australian users who are not defined as wholesale users.
2A.M. Best Indonesia Seminar 2015 9 April 2015
36
Discussion outline
3A.M. Best Indonesia Seminar 2015 9 April 2015
A.M. Best rating process and rating methodology
Mock rating committee
Feedback
A.M. Best rating process and rating methodology
4A.M. Best Indonesia Seminar 2015 9 April 2015
MM LeeGeneral Manager - Analytics
A.M. Best Asia-Pacific
37
5A.M. Best Indonesia Seminar 2015 9 April 2015
Agenda
1. The rating process
2. The rating methodology
3. Country Risk & Enterprise Risk Management
The interactive rating process
6A.M. Best Indonesia Seminar 2015 9 April 2015
38
Timeline of the rating process
7
5. Rating decision and dissemination
4. Best’s analysis
3. Rating meeting
2. Pre-rating preparation
Week 1-2 Week 3-6 Week 7 Week 8-16 Week 16-18
1. Rating Engagement and Contract
• Rating is determined through a committee process• On-going monitoring throughout the year• The rating (management) meeting is an annual process • Information deemed confidential by the company will not be
published
A.M. Best Indonesia Seminar 2015 9 April 2015
8A.M. Best Indonesia Seminar 2015 9 April 2015
Agenda
1. The rating process
2. The rating methodology
3. Country Risk & Enterprise Risk Management
39
9
Rating Recommendation
Country Risk
Industry Trends & Analysis
Enterprise Risk Management
Balance Sheet Strength
Operating Performance
Business Profile
Peer Analysis / Industry
Composite
A.M. Best Indonesia Seminar 2015 9 April 2015
Rating methodology
Rating methodology
10A.M. Best Indonesia Seminar 2015 9 April 2015
40
Balance sheet strength
11
• Absolute capital?
• Risk-based capital?
• Parental support?
• Low volatility of capital?
• Being mutual?
• Government owned?
A.M. Best Indonesia Seminar 2015 9 April 2015
Balance sheet strength
12
Company Structure
Capitalization
Adequacy of Reserve
Financial Flexibility
Liquidity
Reinsurance
Holding company Gov’t-owned / Public / Private
Absolute / Risk-adjusted Stress testing
Prudent assumptions Degree of uncertainty
Equity Subordinated debt
Quality Diversification of assets
Quality Coverage
A.M. Best Indonesia Seminar 2015 9 April 2015
41
Best’s RBC (BCAR)
13
LOW HIGH
Volatility / Sensitivity
BC
AR
100%
200%
BCAR Guidelines
Ratings A- or above
Ratings B+ or above
A.M. Best Indonesia Seminar 2015 9 April 2015
Operating performance
14
• Underwriting margin?
• Return on investment?
• Absolute level of earnings?
• Track record of stable earning?
• Return on shareholders’ equity?
• Favorable market environment?
A.M. Best Indonesia Seminar 2015 9 April 2015
42
Operating performance
15
Profitability
Revenue Composition
Ability to Meet Plan
Sustainability
Strong vs Weak High vs Low fixed costs
Diversification Investment income
Actual vs Forecast
Consistency vs Volatility
A.M. Best Indonesia Seminar 2015 9 April 2015
Business profile
16
• Market share?
• Growth rate?
• Brand recognition?
• Captive business?
• Strong parent?
• Excellent management?
A.M. Best Indonesia Seminar 2015 9 April 2015
43
Business profile
17
Premium Composition
Premium Growth
Competiveness
Management
Insurance Market Risk
Event Risk
Niche vs Diversified Personal vs commercial
Premium rate vs Unit volume Profitability
Distribution capabilities (new channel) Brand recognition
Alignment Adaptive to changes
Insurance industry Regulations / Economy
Financial impact Risk control
A.M. Best Indonesia Seminar 2015 9 April 2015
18A.M. Best Indonesia Seminar 2015 9 April 2015
Agenda
1. The rating process
2. The rating methodology
3. Country Risk & Enterprise Risk Management
44
Country Risk
19
Country Risk: The risk that country-specific factors could adversely affect an insurer’s ability to pay its financial obligations.
Distinct from:
Sovereign Default Risk: Probability that a sovereign government does not repay its debts on time and in their entirety.
A.M. Best Indonesia Seminar 2015 9 April 2015
Country Risk
2020
Lowest RiskCRT‐1
CRT‐3Moderate Risk
CRT‐5Highest Risk
A.M. Best Indonesia Seminar 2015 9 April 2015
45
Country Risk
21
CRT-1: Superior stability. Predictable and transparent political environment, legal system and business infrastructure; sophisticated financial system with deep capital markets; mature insurance industry.
CRT-2: Predictable and transparent political environment, legal system and business infrastructure; sophisticated financial system; mature insurance industry.
CRT-3: Developing political environment, legal system and business infrastructure with developing capital markets; developing regulatory structure.
CRT-4: Relatively unpredictable and non-transparent political, legal and business environment with underdeveloped capital markets; partially to fully inadequate regulatory structure.
CRT-5: Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low human development and social instability; nascent insurance industry.
A.M. Best Indonesia Seminar 2015 9 April 2015
Country Risk
22A.M. Best Indonesia Seminar 2015 9 April 2015
46
Country Risk
23
0
20
40
60
80
100
120
140
160
180
CRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Eas
e o
f D
oin
g B
usi
nes
s R
ank
(O
ut
of
183
Co
un
trie
s)
A.M. Best Indonesia Seminar 2015 9 April 2015
Country Risk considerations
24
A++ A+ C++B-BB+B++A-AFSR
AMB’s Country Risk Tiers do not impose ratings’ ceiling
A.M. Best Indonesia Seminar 2015 9 April 2015
47
Risk management
25
• Risk management is the common thread that links…– Balance sheet strength– Operating performance– Business profile
• Risk management fundamentals can be found in a company’s…– Strategic decision making process – Financial management and control practices– Daily operating procedures
A.M. Best Indonesia Seminar 2015 9 April 2015
26
Risk management
LOW HIGH
Product Complexity
High Risk Profile
Low Risk Profile
Earnings and
Capital Volatility
LOW
HIGH
Industry risk profile trends
A.M. Best Indonesia Seminar 2015 9 April 2015
48
27
Risk management
Today Future
BC
AR Average Returns
Baseline Model
BCAR Guideline
Return Model Supports Higher
Rating
A.M. Best Indonesia Seminar 2015 9 April 2015
Best’s RBC (BCAR)
28
LOW HIGH
Volatility / Sensitivity
BC
AR
100%
200%
BCAR Guidelines
Ratings A- or above
Ratings B+ or above
A.M. Best Indonesia Seminar 2015 9 April 2015
49
29
Risk management
Today Future
BC
AR
Average Returns
Baseline Model
BCAR Guideline
Return Model Supports Higher
Rating
A.M. Best Indonesia Seminar 2015 9 April 2015
Best’s RBC (BCAR)
30
LOW HIGH
Volatility / Sensitivity
BC
AR
100%
200%
BCAR Guidelines
Ratings A- or above
Ratings B+ or above
A.M. Best Indonesia Seminar 2015 9 April 2015
50
31
Enterprise Risk Management integration is considered throughout the rating
Risk identification
Risk tolerance
Risk mitigation
Recognition of opportunity areas
Cognizance of strengths and weakness
Actionable plans to address risk levels
Awareness and involvement at all levels of the organization
Risk management
A.M. Best Indonesia Seminar 2015 9 April 2015
Mock rating committee
32A.M. Best Indonesia Seminar 2015 9 April 2015
Jeff Yeung FCAS, FIAA, CCRAAssociate Director-Analytics
A.M. Best Asia-Pacific Ltd
51
Mock rating committee
9 April 2015A.M. Best Indonesia Seminar 2015 33
Background
• Hypothetical direct non-life insurer in Indonesia: “PT Asuransi ABC”
• Simulate past financial performance from Indonesia insurance market statistics and individual insurers’ financial statements
• Peer comparison with local and regional peers
Rating methodologies used
9 April 2015A.M. Best Indonesia Seminar 2015 34
• Best’s Credit Rating Methodology – Global Life and Non-Life Insurance Policy
Key insurance criteria reports utilized:
• Catastrophe Analysis in A.M. Best Ratings
• Evaluating Country Risk
• Risk Management and the Rating Process for Insurance Companies
• Understanding Universal BCAR
Best's Credit Rating Methodology and the above insurance criteria reports can be found at www.ambest.com/ratings/methodology.
52
Agenda
9 April 2015A.M. Best Indonesia Seminar 2015 35
• Country Risk: Indonesia
• Business profile
• Operating performance
• Balance sheet strength
• ERM
• Vote on rating outcome
Country Risk: Indonesia
9 April 2015A.M. Best Indonesia Seminar 2015 36
• Economic Risk: Moderate
– Continued inflationary pressure
• Political Risk: High
– Social and political instability may limit the amount of capital investment
– Vulnerable to exchange rate volatility and speculative attacks
• Financial System Risk: High
– Bank Indonesia tightened monetary policy by 175 bps in 2013, with additional tightening expected in the second half of 2014
53
Agenda
9 April 2015A.M. Best Indonesia Seminar 2015 37
• Country Risk: Indonesia
• Business profile
• Operating performance
• Balance sheet strength
• ERM
• Vote on rating outcome
Business profileGPW by key lines of business:PT Asuransi ABC vs peers
9 April 2015A.M. Best Indonesia Seminar 2015 38
• PT Asuransi ABC focused on commercial lines (property, engineering, marine hull), began to write personal lines business in 2012
• Top line and market share declining
Source: Otoritas Jasa Keunangan
54
Business profileMarket share of key lines of business:PT Asuransi ABC vs peers
9 April 2015A.M. Best Indonesia Seminar 2015 39
FY 2013 All LOBs PropertyEngineer
ingMarine hull
MotorPA & health
Indonesia direct non‐life Top 20 71.1% 73.8% 60.7% 81.7% 70.1% 61.3%
PT Asuransi ABC 3.4% 8.6% 10.8% 12.0% 0.9% 0.9%
Indonesia direct non‐life rank 1 to 5 35.1% 37.1% 27.4% 51.7% 37.6% 22.4%
Indonesia direct non‐life rank 6 to 10 17.7% 13.9% 17.4% 11.1% 15.5% 15.2%
Indonesia direct non‐life rank 11 to 15 10.4% 11.6% 8.2% 11.5% 10.8% 20.0%
Indonesia direct non‐life rank 16 to 20 8.0% 11.2% 7.6% 7.4% 6.2% 3.7%
FY 2010 All LOBs PropertyEngineer
ingMarine hull
MotorPA & health
Indonesia direct non‐life Top 20 68.6% 68.9% 50.3% 61.5% 72.9% 63.6%
PT Asuransi ABC 5.5% 13.9% 16.0% 23.2% 0.4% 0.0%
Indonesia direct non‐life rank 1 to 5 38.9% 38.5% 18.2% 48.5% 42.7% 22.5%
Indonesia direct non‐life rank 6 to 10 13.3% 10.9% 20.1% 9.8% 13.5% 21.0%
Indonesia direct non‐life rank 11 to 15 9.0% 9.9% 3.2% 1.5% 12.1% 11.1%
Indonesia direct non‐life rank 16 to 20 7.4% 9.5% 8.8% 1.6% 4.6% 9.1%Source: Otoritas Jasa Keunangan
Business profilePT Asuransi ABC: Summary of key rating considerations
9 April 2015A.M. Best Indonesia Seminar 2015 40
Positives: • Competitive position / experience: expertise in underwriting commercial lines (property, engineering, marine hull)
Negatives: • Competitive position: declining market share in core lines
Other remarks: • Product mix & diversification: commercial lines focus → less LOB diversification. (However core lines were profitable)
Conclusion: • Although the company showed strong presence in its core lines in the past, weakening competitive position is a concern
55
Agenda
9 April 2015A.M. Best Indonesia Seminar 2015 41
• Country Risk: Indonesia
• Business profile
• Operating performance
• Balance sheet strength
• ERM
• Vote on rating outcome
Operating performanceFY 2009 to 2013 combined ratio: PT Asuransi ABC vs peers
9 April 2015A.M. Best Indonesia Seminar 2015 42
Source: insurance regulators, insurance associations websites; BestLink
56
Operating performancePT Asuransi ABC: FY 2009 to 2013 key performance indicators
9 April 2015A.M. Best Indonesia Seminar 2015 43
Average 2013 2012 2011 2010 2009
Net loss ratio 53.9% 54.0% 55.3% 55.8% 51.7% 52.8%
Net commission ratio 10.3% 10.5% 10.1% 10.2% 10.4% 10.4%
Underwriting expense ratio 25.4% 26.3% 25.8% 25.1% 24.9% 24.6%
Combined ratio 89.6% 90.8% 91.2% 91.1% 87.0% 87.7%
Operating ratio 66.6% 65.8% 66.9% 69.0% 64.8% 66.3%
Net investment yield 5.7% 5.8% 5.8% 5.8% 5.8% 5.7%
Underwriting results (IDR billion) 61.23 52.23 49.92 56.91 76.57 70.54
Profit before tax (IDR billion) 196.80 197.95 190.10 191.45 208.65 195.87
Operating performanceProperty net loss ratio FY 2010 to 2013:PT Asuransi ABC vs peers
9 April 2015A.M. Best Indonesia Seminar 2015 44
Average 2013 2012 2011 2010
Indonesia direct non‐life (joint‐venture) 73% 88% 17% 62% 124%
Indonesia direct non‐life (local) 53% 53% 44% 39% 81%
PT Asuransi ABC 50% 53% 47% 51% 49%
Indonesia direct non‐life rank 1 to 5 61% 85% 54% 67% 32%
Indonesia direct non‐life rank 6 to 10 53% 67% 60% 51% 19%
Indonesia direct non‐life rank 11 to 15 52% 62% 43% 47% 47%
Indonesia direct non‐life rank 16 to 20 27% 44% ‐4% 38% 46%
Source: Otoritas Jasa Keunangan
57
Operating performanceEngineering net loss ratio FY 2010 to 2013:PT Asuransi ABC vs peers
9 April 2015A.M. Best Indonesia Seminar 2015 45
Average 2013 2012 2011 2010
Indonesia direct non‐life (joint‐venture) 90% 99% 50% 60% 150%
Indonesia direct non‐life (local) 53% 52% 56% 48% 58%
PT Asuransi ABC 52% 55% 71% 46% 52%
Indonesia direct non‐life rank 1 to 5 54% 69% 75% 42% 21%
Indonesia direct non‐life rank 6 to 10 34% 51% 27% 31% 0%
Indonesia direct non‐life rank 11 to 15 98% 97% 178% 53% ‐26%
Indonesia direct non‐life rank 16 to 20 55% 26% 58% 35% 127%
Source: Otoritas Jasa Keunangan
Operating performanceMarine hull net loss ratio FY 2010 to 2013:PT Asuransi ABC vs peers
9 April 2015A.M. Best Indonesia Seminar 2015 46
Average 2013 2012 2011 2010
Indonesia direct non‐life (joint‐venture) 30% 84% 49% 45% 22%
Indonesia direct non‐life (local) 71% 69% 50% 51% 169%
PT Asuransi ABC 73% 57% 90% 75% 79%
Indonesia direct non‐life rank 1 to 5 48% 61% 56% 52% 24%
Indonesia direct non‐life rank 6 to 10 49% 50% 85% 48% 11%
Indonesia direct non‐life rank 11 to 15 54% 72% 80% 173% ‐2813%
Indonesia direct non‐life rank 16 to 20 29% 24% 132% 46% ‐95%
Source: Otoritas Jasa Keunangan
58
Operating performancePT Asuransi ABC: Benchmarking with local and regional peers
9 April 2015A.M. Best Indonesia Seminar 2015 47
Positives: • vs regional peers: 5‐year average combined ratio lower than some top insurers in the Philippines, Thailand and Vietnam. Less variability
• vs local peers: 5‐year average combined ratio similar to top 20 insurers in Indonesia. Less variability
Negatives: • vs local peers: marine hull average past net loss ratio was higher than local peers
Operating performancePT Asuransi ABC: Summary of key rating considerations
9 April 2015A.M. Best Indonesia Seminar 2015 48
Positives: • Operating performance: consistently positive operating results, low volatility
• Underwriting performance: combined ratio similar to peers on average, low variability. Property line shows stable loss ratio over past 4 years
• Investment performance: stable and positive results
Negatives: • Expense ratio shows increasing trend• Marine hull average past net loss ratios was higher than local peers
Other remarks: • Marine hull net loss ratio volatility observed across the whole industry
Conclusion: • PT Asuransi ABC has good operating performance on absolute basis• Performance similar to local peers on average, better than some big
players in other markets in Southeast Asia• Low volatility in past 5 years’ performance
59
Agenda
9 April 2015A.M. Best Indonesia Seminar 2015 49
• Country Risk: Indonesia
• Business profile
• Operating performance
• Balance sheet strength
• ERM
• Vote on rating outcome
Balance sheet strengthCapital & surplus: PT Asuransi ABC vs peers FY 2013
9 April 2015A.M. Best Indonesia Seminar 2015 50
Source: insurance regulators, insurance associations websites; BestLink
60
Balance sheet strengthNPW to surplus ratio: PT Asuransi ABC vs peers FY 2013
9 April 2015A.M. Best Indonesia Seminar 2015 51
Source: insurance regulators, insurance associations websites; BestLink
This ratio measures a company’s exposure to pricing errors in its current book of business
Balance sheet strengthNet technical reserves to surplus ratio: PT Asuransi ABC vs peers FY 2013
9 April 2015A.M. Best Indonesia Seminar 2015 52
Source: insurance regulators, insurance associations websites; BestLink
This ratio shows a company’s exposure to reserving errors relative to size of its capital and surplus
61
Balance sheet strengthInvested assets to C&S ratio: PT Asuransi ABC vs peers FY 2013
9 April 2015A.M. Best Indonesia Seminar 2015 53
Source: insurance regulators, insurance associations websites; BestLink
Balance sheet strength analysis include evaluation of asset leverage, i.e. the exposure of a company’s surplus to investment risk, interest rate risk and credit risk
Balance sheet strengthNet retention ratio: PT Asuransi ABC vs peers FY 2013
9 April 2015A.M. Best Indonesia Seminar 2015 54
Source: insurance regulators, insurance associations websites; BestLink
Low net retention ratios are generally associated with high reinsurance credit risk exposures
62
Balance sheet strengthCash and deposits to net technical reserves: PT Asuransi ABC vs peers FY 2013
9 April 2015A.M. Best Indonesia Seminar 2015 55
Source: insurance regulators, insurance associations websites; BestLink
A company’s liquidity depends on the degree to which it can satisfy its financial obligations, whether by holding cash and investments that are sound, diversified and liquid, or through operating cash flow.
Balance sheet strengthPT Asuransi ABC: investment profile FY 2013
9 April 2015A.M. Best Indonesia Seminar 2015 56
• Bonds portfolio average duration: 2.5 years
• Investment allocation strategy:
Target Range
Cash & deposits 67% 50% ‐ 90%
Bonds 20% 10% ‐ 30%
Equities (listed) 10% 0% ‐ 15%
Real estate 3% 0% ‐ 7.5%
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Balance sheet strengthPT Asuransi ABC: reinsurance strategy
9 April 2015A.M. Best Indonesia Seminar 2015 57
• Maximum retention per event:
< 2% of company's capital and surplus
• Reinsurers selection criteria:
o ICR “a-” or above
o Share per reinsurer up to 20%
(leader up to 35%)
Reinsurer’s ICR
Percentage
aaa, aa+ 0%
aa, aa‐ 5%
a+, a 20%
a‐ 75%
Reinsurance recoverables: % split by reinsurers’ ratings
(December 2013)
Currency: Indonesia RupiahDenomination: Billion
NET REQUIRED CAPITALFY ending % of
Asset Risk: 12/31/13 GRC Exposure(B1) Fixed Income Securities Risk 100.79 12.1% 2,285.66 (Total of cash & deposits, bonds)
(B2) Equity Securities Risk 70.13 8.4% 266.37 (Total of equities, real estate)
Subtotal (B1 + B2) 170.93 20.6%
(B3) Interest Rate Risk 2.07 0.2% 469.53 (Total bonds)
Total Investment Risk (B1 + B2 +B3) 172.99 20.8%
(B4) Credit Risk 255.09 30.7% 3,547.58 (Total of receivables, reinsurance recoverables)
Total Asset Risk (B1 + B2 + B3 + B4) 428.09 51.5%
Underwriting Risk
(B5) Net Loss and LAE Reserve Risk 236.41 27.3% 693.63 (Total net loss reserves)
(B6) Net Premium Risk 184.32 21.2% 586.32 (Total net premium written)
Total Underwriting Risk (B5 + B6) 420.73 48.5%
(B7) Business Risk 0.00 0.0%
Gross Required Capital (GRC) 848.82 100.0%
Less: Covariance Adjustment 404.08 47.8%
Net Required Capital 444.74 52.2%
Adjusted Policyholder Surplus12/31/13
Reported Surplus 1,212.05
Loss Reserve Equity 6.09Sub-total 1,218.14
Net Catastrophe PML (After-Taxes and Reinsurance) 48.72Unearned Premium Capital Charge (P/C Only) 27.51
Adjusted Surplus (APHS) 1,141.91
Calculated APHS/NRC - Standard 256.8%Calculated APHS/NRC - Catstress 247.8%
Balance sheet strengthPT Asuransi ABC: Best’s Capital Adequacy Ratio (BCAR)
9 April 2015A.M. Best Indonesia Seminar 2015 58
223.4%
233.7%238.0%
243.6%256.8%
1,0201,082
1,141 1,178 1,212
800
1,000
1,200
1,400
1,600
200%
215%
230%
245%
260%
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
BCAR Reported surplus (IDR billion)
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Balance sheet strengthPT Asuransi ABC: Benchmarking with local and regional peers
9 April 2015A.M. Best Indonesia Seminar 2015 59
Positives: • Underwriting leverage: lower NPW to surplus ratio than most peers • Liquidity: High ratio of cash and deposits to net technical reserves
Negatives: • Absolute capital: absolute capital size relatively smaller than some regional peers
Other remarks: • Net retention ratio: lower than most peers (which usually implies higher reinsurance dependency)
• Underwriting leverage: slightly higher net technical reserves to surplus ratio than some local peers
Balance sheet strengthPT Asuransi ABC: Summary of key rating considerations
9 April 2015A.M. Best Indonesia Seminar 2015 60
Positives: • Capitalization: steady growth of C&S, high BCAR scores• Investment allocation: conservative• Liquidity: good• Reinsurance protection: “a‐” above for reinsurers on the panel;
diversified panel; set event retention to be 2% of capital and surplus
Negatives: • Absolute capital size relatively smaller than some regional peers
Other remarks: • High reinsurance dependency (need good management of reinsurance program)
• High net technical reserves relative to capital and surplus (need prudent reserving practice)
• Catastrophe exposed portfolio
Conclusion: • PT Asuransi ABC has favorable balance sheet strength
65
Agenda
9 April 2015A.M. Best Indonesia Seminar 2015 61
• Country Risk: Indonesia
• Business profile
• Operating performance
• Balance sheet strength
• ERM
• Vote on rating outcome
Enterprise risk managementPT Asuransi ABC: Summary of key rating considerations
9 April 2015A.M. Best Indonesia Seminar 2015 62
Positives: • Risk culture: Establish risk tolerance or appetite in relation to earnings and capital
• Risk identification: Identify and manage five categories of risk – underwriting, market, credit, operational, strategic
• Risk management and monitoring: strong adherence to underwriting policy and investment policy
Negatives: • Role and responsibilities: ERM department newly established 2 years ago: still developing holistic view of risk profile and potential impact of risk correlations
Conclusion: • “Moderate” risk profile
Risk Profile Risk Management Capability
GoodLow risk
SuperiorHigh risk
StrongModerate
risk
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Agenda
9 April 2015A.M. Best Indonesia Seminar 2015 63
• Country Risk: Indonesia
• Business profile
• Operating performance
• Balance sheet strength
• ERM
• Vote on rating outcome
Impact of operating performance and business profile on the balance sheet
9 April 2015A.M. Best Indonesia Seminar 2015 64
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Vote on rating outcomePT Asuransi ABC
9 April 2015A.M. Best Indonesia Seminar 2015 65
Balance sheet strength
Operating performance
Business profile
+
–
0
+
–
0
ERM (+ / ‐ / 0 ?)
Country Risk
68
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