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Presented ByPresented ByMark PucciaMark Puccia
Managing DirectorManaging Director
Ratings Of Insurance CompaniesRatings Of Insurance Companies
World Bank InstituteWorld Bank Institute Contractual Savings ConferenceContractual Savings Conference
What are Insurer Ratings?What are Insurer Ratings?
How does Standard & Poor's produce ratings? How does Standard & Poor's produce ratings?
Who uses Insurer Ratings and why? Who uses Insurer Ratings and why?
Who is Standard & Poor's ? Who is Standard & Poor's ?
Who is Standard & Poor's ?Who is Standard & Poor's ?
Standard & Poor's Standard & Poor's
Insurance RatingsInsurance Ratings...
the global leader in Insurance Ratings...
Who is Standard & Poor's ?Who is Standard & Poor's ?
We currently rate approximatelyWe currently rate approximately 4,000 4,000 companiescompanies in over in over 7070 countries, countries, across all sectors of the market...across all sectors of the market...
Who is Standard & Poor's ?Who is Standard & Poor's ?
Our Purpose and Mission: Our Purpose and Mission:
" To help people around the world make well-informed
financial decisions by providing impartial, value-added
analytically driven SOLUTIONS.“
Our commitment to
our customers is based on :
Analytic Excellence
Independence and Impartiality
Integrity
What are Standard & Poor's Insurer Ratings?What are Standard & Poor's Insurer Ratings?
Our ratings are:prospective evaluations of an insurer's financial security to its policyholders.
The Insurer Itself
Who uses Standard & Poor's Insurer Ratings Who uses Standard & Poor's Insurer Ratings and and WHYWHY??
•Buyers of Insurance - To ensure they purchase coverage from an insurer that can meet it's claims.
•Brokers / Agents -
To ensure they meet professional "due diligence" and disclosure requirements.
•Investors and Banks - To support their credit evaluations.
•Regulators - For effective monitoring.
Standard & Poor's Recognition In The MarketStandard & Poor's Recognition In The Market
Standard & Poor’s recognition in the market ultimately depends upon the credibility of our opinions
It is important that the users of our ratings understand how we arrive at our opinions
We regularly publish our rating definitions and detailed reports on criteria
What are Standard & Poor's Insurer Ratings?What are Standard & Poor's Insurer Ratings?
"Interactive Ratings" - with the full cooperation of the insurer.
"Public Information Ratings" - based primarily on information in the public domain.
Standard & Poor's InsuranceStandard & Poor's Insurance RatingsRatings produces two types of ratings:
What are Standard & Poor's Insurer Ratings?What are Standard & Poor's Insurer Ratings?
Interactive Ratings:
Requested by an insurer recognizing
the global market-value of such a rating.
Process requires in-depth meetings
with insurer's management.
What are Standard & Poor's Insurer Ratings?What are Standard & Poor's Insurer Ratings?
Public Information Ratings:
Based largely on public financial
accounts.
?
What are Standard & Poor's Insurer Ratings?What are Standard & Poor's Insurer Ratings?
Standard & Poor's insurer ratings are divided into two broad categories:
Secure Vulnerable
Secure RatingsSecure Ratings
AAAExtremely StrongFinancial Security
AAVery Strong
Financial Security
AStrong
Financial Security
BBBGood
Financial Security
SECURE
What are Standard & Poor's Insurer Ratings?
Vulnerable Ratings:Vulnerable Ratings:
What are Standard & Poor's Insurer Ratings?
Default RatesDefault RatesPercent
CCC
B
BB
BBB
A
AA
AAA
SecureSecure VulnerableVulnerable
What are Standard & Poor's Insurer Ratings?
Rating DistributionRating Distribution
0
5
10
15
20
25
30
35
AAA AA A BBB BB B CCC
P/C Life
Percent
SecureSecure VulnerableVulnerable
What are Standard & Poor's Insurer Ratings?
How Does Standard & Poor's Produce Ratings?
Overview Of S&P RatingsOverview Of S&P Ratings
The Standard & Poor’s Analysis Is A Comprehensive
Process That Considers The
Following Factors Before Assigning A Rating To An
Insurer:
1. Management & Corporate Strategy
2. Business Review
3. Operating Performance
4. Capital Adequacy & Reserve Adequacy
5. Catastrophe Risk Analysis,Reinsurance, Securitization
6. Investment Analysis
7. Liquidity Analysis
8. Holding Company Analysis
Tailored To Each Industry / Sector / Region
Management & Corporate Strategy Management & Corporate Strategy And Evaluating Risk ManagementAnd Evaluating Risk Management
The Effects Of Past, Present And Future Strategies
Strategic Positioning
Operational Skill
Financial Risk Tolerance and Risk Management Skills
Business ReviewBusiness ReviewThe Overall Health And Standing The Overall Health And Standing Of The Company In The Areas Of:Of The Company In The Areas Of:
Competitive Strengths/Weaknesses
Distribution Channels
Organization Structure
Diversification
Growth Rates
Market Share
Products Offered In Relation To Market Demand
Operating Performance
Risk-Adjusted Earnings Adequacy
Underwriting Performance & Expense Efficiency
ROA, ROR, ROE
A Look Behind The Bottom Line:
Operational AnalysisOperational Analysis
Return On Assets (ROA)Return On Assets (ROA)Identifies The Degree To Which The Company Is Able Identifies The Degree To Which The Company Is Able To Earn A Spread On Asset Accumulation BusinessTo Earn A Spread On Asset Accumulation Business
Return On Revenue (ROR) Return On Revenue (ROR) Identifies The Degree To Which The Company Is Identifies The Degree To Which The Company Is Able To Convert The Business (Revenues) Into Able To Convert The Business (Revenues) Into ProfitsProfits
Return On Equity (ROE)Return On Equity (ROE)Identifies The Value Relative To The Invested Identifies The Value Relative To The Invested Capital Represented By A Company’s Profits – Its Capital Represented By A Company’s Profits – Its ProfitabilityProfitability
Standard & Poor’s Earnings Standard & Poor’s Earnings Adequacy Ratio (EAR)Adequacy Ratio (EAR)
A Risk-Adjusted Analysis Of A Company’s Earnings Stream, Reflecting The Insurer’s Underwriting Risks And Investment Income
Establishes Benchmarks That Reflect The Different Levels Risks Inherent In Different Lines Of Business
Evaluates Each Company On The Basis Of How Well It Performs Given Its Business Mix
Uses The Pretax ROR or ROA As Its Primary Measures
Uses The Consolidated Statutory Accounts For Property/Casualty And Consolidated GAAP For Life And Groups
The Measure Is Time Weighted To Mitigate The Effects Of Yearly Fluctuations And Industry Cyclicality
Investment AnalysisInvestment Analysis
Asset Management And Its Relationship To:
Asset Allocation
Portfolio Diversification
Asset Credit Quality
Interest Rate Risk Management
Liquidity
Market Risk
CapitalizationCapitalization
Operating Company Risk Based Capital
Leverage
Coverage Relationships
Double Leverage
Capital Adequacy & Reserve Capital Adequacy & Reserve AdequacyAdequacy
The Management Of Capital And A Risk-Adjusted Analysis Of How It Relates To:
Asset Risks
Reserve Adequacy and Standard & Poor’s Reserving Model
Reinsurance Protection/Quality
Liability Risks (Mortality/Morbidity/Underwriting)
Interest Rate Risks
Pricing Risks
General Business Risks
Financial Leverage/Interest Coverage
Liquidity AnalysisThe Interrelationship Of Insurer’s Assets
To Its Liabilities:
Sources Of Liquid Assets
Cash Demands And Liabilities
Large Contractual Maturities
Underwriting Operating Cash Flows
Standard & Poor’s Liquidity Standard & Poor’s Liquidity Model: What Is It?Model: What Is It?
Standard & Poor’s Liquidity Model calculates the redundancy of a life
insurer’s risk-adjusted liquid assets to it’s risk-adjusted liquid
liabilities subject to scheduled and unscheduled withdrawals based on
a crisis of confidence scenario
Holding Company AnalysisHolding Company Analysis
The Approach Standard & Poor’s Uses To Evaluate Holding Companies:
Evaluating Management Policy
Ratios Used To Evaluate Holding Companies
Financial Leverage Ratio Guidelines
Off-balance-sheet Financing
Equity Credit For Preferred Stock And Hybrid Equity
