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2018 Methodology Review Seminar
etc.venues St.Paul’s, London
6 November 2018
Agenda: 2018 Methodology Review Seminar
2
14:25 Welcome & IntroductionGreg Carter, Managing Director, Analytics –EMEA
14:30 Best’s Credit Rating Methodology (BCRM) –Reviewing the Building Block ApproachMahesh Mistry, Senior Director, Analytics
15:00 Revised Best’s Credit Rating Methodology (BCRM) in Action: Mock Rating CommitteeCatherine Thomas, Committee Chair, Senior Director, AnalyticsMichael Dunckley, Lead Analyst, Associate Director, Analytics
15:45 Q&A: Interactive Discussion
16:15 Close
Disclaimer© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTEDBY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHERTRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANYSUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUTAMB’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 inpart caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the controlof 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 incidentaldamages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resultingfrom 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 orrecommendations to purchase, 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 itscontractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, marketvalue 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 ORINFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must beweighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer andguarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.
3
DisclaimerUS Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved inthe sales or marketing of a product or service of the CRA also participates in determining or monitoring the creditrating, or developing or approving procedures or methodologies used for determining the credit rating.
No part of this presentation amounts to sales / marketing activity and A.M. Best’s Rating Divisionemployees are prohibited from participating in commercial discussions.
Any queries of a commercial nature should be directed to A.M. Best’s Market Development function.
4
Welcome & Introduction
Greg CarterManaging Director, Analytics - EMEA
Best’s Credit Rating Methodology (BCRM)
Reviewing the Building Block Approach
Mahesh MistrySenior Director, Analytics
Issuer Credit Ratings and Financial Strength Ratings
Long-TermICR
FSR
aaaaa+
A++
aaaa-
A+
a+a
A
a- A-
bbb+bbb
B++
bbb- B+
Long-TermICR
FSR
bb+bb
B
bb- B-
b+b
C++
b- C+
ccc+ccc
C
ccc-cc
C-
7
8
Building Block Approach
A.M. Best’s Rating Process: Recap
A.M. Best’s Rating Process: Recap
9
Assessment
Strongest
Very Strong
Strong
Adequate
Weak
Very Weak
Assessment
Very Strong +2
Strong +1
Adequate 0
Marginal -1
Weak -2
Very Weak -3
Assessment
Very Favorable +2
Favorable +1
Neutral 0
Limited -1
Very Limited -2
Assessment
Very Strong +1
Appropriate 0
Marginal -1
Weak -2
Very Weak -3/4
Country Risk (EMEA Examples)
10
Country CRT Economic Risk Political Risk Financial System Risk MovementUK 1 Very Low Very Low Very Low
Germany 1 Very Low Very Low Very Low
France 1 Low Low Very Low
Spain 2 Low Low Low
Bermuda 2 Low Low Low
Italy 2 Low Low Moderate
UAE 3 Moderate Moderate Low
Qatar 3 Low Moderate Moderate
Malta 3 Moderate Low Moderate
Oman 4 Moderate High High Down to CRT-4 in 2018
Bahrain 4 High Moderate Moderate Down to CRT-4 in 2015
Russia 4 Moderate High High
Kazakhstan 4 Moderate High High
Egypt 5 High Very High Very High Down to CRT-5 in 2011
Kenya 5 High High Very High
Nigeria 5 High Very High Very High
Balance Sheet Strength: The Baseline Assessment
11
Overall Balance Sheet Strength Assessment
CRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+/a a+/a a/a- a-/bbb+ bbb+/bbb
Very Strong a/a- a/a- a-/bbb+ bbb+/bbb bbb/bbb-
Strong a-/bbb+ a-/bbb+ bbb+/bbb/bbb- bbb/bbb-/bb+ bbb-/bb+/bb
Adequate bbb+/bbb/bbb- bbb+/bbb/bbb- bbb-/bb+/bb bb+/bb/bb- bb/bb-/b+
Weak bb+/bb/bb- bb+/bb/bb- bb-/b+/b b+/b/b- b/b-/ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
Com
bine
d B
alan
ce S
heet
Ass
essm
ent
(Rat
ing
Uni
t/ H
oldi
ng C
ompa
ny)
Country Risk Tier
Exhibit A.6
Overall Balance Sheet Strength Assessment
Combined Balance Sheet Assessment (Rating Unit/ Holding Company)Country Risk Tier
CRT-1CRT-2CRT-3CRT-4CRT-5
Strongesta+/aa+/aa/a-a-/bbb+bbb+/bbb
Very Stronga/a-a/a-a-/bbb+bbb+/bbbbbb/bbb-
Stronga-/bbb+a-/bbb+bbb+/bbb/bbb-bbb/bbb-/bb+bbb-/bb+/bb
Adequatebbb+/bbb/bbb-bbb+/bbb/bbb-bbb-/bb+/bbbb+/bb/bb-bb/bb-/b+
Weakbb+/bb/bb-bb+/bb/bb-bb-/b+/bb+/b/b-b/b-/ccc+
Very Weakb+ and belowb+ and belowb- and belowccc+ and belowccc and below
2
3
4
5
6
A
B
C
D
CRT-1
CRT-2
Strongest
a+/a
a+/a
Very Strong
a/a-
a/a-
Strong
a-/bbb+
a-/bbb+
Combined Balance Sheet Assessment
(Rating Unit/ Holding Company)
Country Risk Tier
Building Block: Balance Sheet Strength
2
31
57
102 1
15
1923 22 3
1
a+ a a- bbb+ bbb bbb- bb+ bb
Mature Emerging
Balance Sheet Strength: Baseline ICR Assessment
Best’s Capital Adequacy Ratio (BCRM) Guidelines
13
VaR Level (%) BCAR BCAR Assessment
99.6 > 25 at 99.6 Strongest
99.6 > 10 at 99.6 & ≤ 25 at 99.6 Very Strong
99.5 > 0 at 99.5 & ≤ 10 at 99.6 Strong
99 > 0 at 99 & ≤ 0 at 99.5 Adequate
95 > 0 at 95 & ≤ 0 at 99 Weak
95 ≤ 0 at 95 Very Weak
* Companies with < 20 million USD in capital & surplus cannot score in strongest category
BCAR = ( Available Capital - Net Required Capital) x 100Available Capital
Reinsurers: BCAR Scores (1 in 250)
14
86
81 80 79
72 70 6966
63 61 59 59 57 57 55 54 53 52 51 50 49 4946 45 44 43
41 41 39 38 3734
32
2622 20
4
-13
%
Reinsurers
Average
Mature
Emerging
Strongest Threshold
BCAR @ VAR 99.6%
Insurers BCAR Scores (Mature Markets) (1 in 250)
15
87
7977
7470 68 68 67 66 65 64 63 61 61
58 57 57 57 56 5653
51 50 49 49 48 48 46 45 44 43 42 42 41 41 41 39 39 3937
34 32 31 30 30 3027
24 2320 18 18 18 17 15
5
%
Insurers
Average
Strongest Threshold
BCAR @ VAR 99.6%
Balance Sheet Strength: Relationship of BCAR
16
Mature Balance Sheet Strength
Assessment Strongest Very Strong Strong Adequate Weak
BCAR
Strongest 16% 59% 8% 2% 1%
Very Strong 2% 5% 4% 0% 0%
Strong 0% 0% 2% 0% 0%
Adequate 0% 0% 0% 1% 0%
Weak 0% 0% 0% 0% 1%
Emerging Balance Sheet Strength
Assessment Strongest Very Strong Strong Adequate Weak
BCAR
Strongest 1% 59% 21% 0% 0%
Very Strong 0% 1% 10% 0% 0%
Strong 0% 0% 2% 1% 0%
Adequate 0% 0% 1% 2% 0%
Weak 0% 0% 0% 0% 0%
The BCAR is not the sole determinant of balance sheet strength
Most companies have a balance sheet strength assessment of “Very Strong”
Balance Sheet Strength: Key Characteristics
17
CRT 1 / CRT 2 CRT 3 / CRT 4 /CRT 5BCAR BCAR
Liquidity Appropriateness of RI Programme
ALM Capital Structure / Leverage
Appropriateness of RI Programme Quality of Capital
Stress Testing Holding Co Assessments
Capital Structure / Leverage Reserve Quality
Liquidity Financial Flexibility
Quality of Capital Liquidity
Holding Co Assessment Quality of Assets
Quality of Assets Stress Testing
Reinsurance Dependence ALM
Reserve Quality Reinsurance Dependence
Operating Performance: Distribution of Ratings
18
44 51
8
3538
9
1Very Strong (+2) Strong (+1) Adequate (0) Marginal (-1) Weak (-2)
EmergingMature
Operating Performance (5YR AVE)
19
48% 53%
67%
Strong Adequate Marginal
Loss Ratio
69%87%
102%
Strong Adequate Marginal
Combined Ratio
56% 60% 62%
95%
Strong Adequate Marginal Weak
Loss Ratio
75%91%
108%
149%
Strong Adequate Marginal Weak
Combined Ratio
Mature Markets
Emerging Markets
Operating Performance
20
13%10%
2%
-5%
Strong Adequate Marginal Weak
Emerging Markets – Five Year Average Return on Equity
13%
9%
-1%
Strong Adequate Marginal
Mature Markets – Five Year Average Return on Equity
Operating Performance:Return on Equity (5 year average)
21
0.0
0.1
0.2
-10% 0% 10% 20% 30%
Stan
dard
Dev
iatio
nMature Markets
Strong Adequate Marginal
0.0
0.1
0.2
-20% -10% 0% 10% 20% 30%St
anda
rd D
evia
tion
Emerging Markets
Strong Adequate Marginal Weak
Operating Performance: Key Considerations
22
Underwriting Performance Investment Performance
Overall Earnings Volatility
Diversity of Income Streams Diversity of Earnings by Market
Track Record of Past Performance Prospective Earnings Generations
Performance Relative to Peers Prospective Market Conditions
Economic Conditions (inflation, interest rates)
Business Profile: Distribution of Ratings
23
9 15
54
252
31
47
3Very Favourable
(+2)Favourable (+1) Neutral (0) Limited (-1) Very Limited (-2)
EmergingMature
Business Profile: General Characteristics
24
Very Favourable LimitedCRT1
CRT5
CRT3
Neutral-Superior global franchise-Well Diversified by Product-Excellent Distribution-Market Leaders-Pricing Sophistication->USD 10bn in revenue-Core markets/products are performing well-Forefront of innovation
-Strong position in a single market or niche segment-Limited diversification by product / territory-Good distribution / exclusively - strong competition prevails-Good in-house expertise and capabilities-Some concerns on core lines-Good data and pricing sophistication
-Strong market profile / leader in a single market-Limited size on global scale-Narrow profile on net basis-Some dependence on third parties-High degree of competition-Regulatory Risk
-Small-to-Medium sized players-Limited profile on global scale-High dependence on third parties-High levels of competition-Poor data quality-Weak management-Limited diversification by product or geography-High regulatory risk
Enterprise Risk Management: Distribution of Ratings
25
9
92
2
48
278
Very Strong (+1) Appropriate (0) Marginal (-1) Weak (-2)
EmergingMature
ERM: Risk Framework Evaluation
26
20 18 14 1921
72
5979 65
71
7
22
614
7
Risk Appetiteand Tolerance
Stress Testing RiskIdentificationand Reporting
RiskManagementand Controls
Governanceand RiskCulture
Embedded Developed Emerging Nascent Unrecognized
26
12
31
19 18
40
39
41
50
41
11
24
6 919
Risk Appetiteand Tolerance
Stress Testing RiskIdentificationand Reporting
RiskManagementand Controls
Governance andRisk Culture
Emerging MarketsMature Markets
ERM: Risk Profile Evaluation
27
Composite Risk Profile Risk CapabilityGlobal Reinsurance Groups High Appropriate to Very Strong
Global Insurance Groups High Appropriate to Very Strong
London Market High Appropriate
Emerging Market Insurers Medium Marginal to Appropriate
Emerging Market Reinsurers Medium Marginal to Appropriate
Credit Insurers Medium Appropriate
Mature Market Insurers Medium to Low Appropriate
Mature Market Reinsurers Medium to Low Appropriate
Health Insurers Medium to Low Marginal to Appropriate
Captives Medium to Low Appropriate
RevisedBest’s Credit Rating Methodology (BCRM)
in action
Mock Rating Committee
A.M. Best Credit Rating Analysts
An Updated BCRM
• Not a fundamental change to rating analysis
• Key rating drivers remain the same– Balance Sheet Strength– Operating Performance– Business Profile– Enterprise Risk Management
29
An Updated BCRM: Building Blocks
30
Balance Sheet Strength
Baseline
Operating Performance
BusinessProfile
Enterprise Risk
Management
Comprehensive Adjustment1
RatingLift/Drag2
Issuer Credit Rating
Country Risk
+2+1
+1
+1
-1
-2
-3
-1
-2
-3
-1
-2
+2
Maximum +2
-4
Notes:1: A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2: Applies to assessment of non-lead rating units in relation to the broader organisation leading to lift/drag +4 to -4
Balance Sheet Strength Assessment: Not just BCAR
31
A.M. Best - An Introduction 20 March 2018
Balance Sheet Strength
Assessment
Asset Liability Matching
(ALM)
Quality of Capital
Reinsurance Program
Fungibility of Capital
Liquidity
StressTesting
BCAR Guidelines
32
VaR Level (%) BCAR BCAR Assessment
99.6 > 25 at 99.6 Strongest
99.6 > 10 at 99.6 & ≤ 25 at 99.6 Very Strong
99.5 > 0 at 99.5 & ≤ 10 at 99.6 Strong
99 > 0 at 99 & ≤ 0 at 99.5 Adequate
95 > 0 at 95 & ≤ 0 at 99 Weak
95 ≤ 0 at 95 Very Weak
* Companies with < 20 million USD in capital & surplus cannot score in strongest category
BCAR = ( Available Capital - Net Required Capital) x 100Available Capital
Baseline Rating from Balance Sheet Strength
33
CRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+/a a+/a a/a- a-/bbb+ bbb+/bbb
Very Strong a/a- a/a- a-/bbb+ bbb+/bbb bbb/bbb-
Strong a-/bbb+ a-/bbb+ bbb+/bbb/bbb- bbb/bbb-/bb+ bbb-/bb+/bb
Adequate bbb+/bbb/bbb- bbb+/bbb/bbb- bbb-/bb+/bb bb+/bb/bb- bb/bb-/b+
Weak bb+/bb/bb- bb+/bb/bb- bb-/b+/b b+/b/b- b/b-/ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
Com
bine
d B
alan
ce S
heet
Ass
essm
ent
(Rat
ing
Uni
t/ H
oldi
ng C
ompa
ny)
Country Risk Tier
Exhibit A.6
Overall Balance Sheet Strength Assessment
Combined Balance Sheet Assessment (Rating Unit/ Holding Company)Country Risk Tier
CRT-1CRT-2CRT-3CRT-4CRT-5
Strongesta+/aa+/aa/a-a-/bbb+bbb+/bbb
Very Stronga/a-a/a-a-/bbb+bbb+/bbbbbb/bbb-
Stronga-/bbb+a-/bbb+bbb+/bbb/bbb-bbb/bbb-/bb+bbb-/bb+/bb
Adequatebbb+/bbb/bbb-bbb+/bbb/bbb-bbb-/bb+/bbbb+/bb/bb-bb/bb-/b+
Weakbb+/bb/bb-bb+/bb/bb-bb-/b+/bb+/b/b-b/b-/ccc+
Very Weakb+ and belowb+ and belowb- and belowccc+ and belowccc and below
2
3
4
5
6
A
B
C
D
CRT-1
CRT-2
Strongest
a+/a
a+/a
Very Strong
a/a-
a/a-
Strong
a-/bbb+
a-/bbb+
Combined Balance Sheet Assessment
(Rating Unit/ Holding Company)
Country Risk Tier
Operating Performance & Business Profile
34
Enterprise Risk Management (ERM)
35
• Holistic assessment of the risk management framework and evaluation of risks relative to capabilities
Evaluate ERM through an ORSA-type lens
• Part I: Framework Evaluation• Part II: Risk Evaluation• Part III: Overall ERM Assessment
Redesigned Risk Impact Worksheet (RIW)
Rating Committee Voting• Voting quorum – minimum of six members, including at
least two senior members
• Simple majority vote is acceptable for the approval of any rating action
• Chair can break tie or refer the decision to a higher committee
• Voting members must have no conflicts of interest, but must have relevant experience and have passed compliance requirements
36
Rating Committee Members
37
• Michael DunckleyAssociate Director (Primary Analyst)
• Angela YeoSenior Director (Team Leader)
• Catherine ThomasSenior Director (Chair)
• Mathilde JakobsenDirector
• Charlotte VigierSenior Financial Analyst
• Konstantin LangowskiFinancial Analyst
IntroductionBMF Insurance Company
• New rating of a standalone insurance company
• Recommendation: rating of ‘a-’, stable outlook
38
Long-TermICR
FSR
aaaaa+
A++
aaaa-
A+
a+a
A
a- A-
bbb+bbb
B++
bbb- B+
Overview - BMF Insurance Company
• Domiciled in a small European country
• Country Risk Tier 2 – stable operating environment
• BMF Insurance Company (BMF) established 70 years ago and is a private company
• Fifth-largest insurer in its country of domicile
• Management have in-depth knowledge and experience of the local market
39
• Risk-adjusted capitalisation is assessed as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR)
• Balance Sheet Strength factors:– Good internal capital generation and prudent reserving approach– Appropriate reinsurance protection with good security– Financial flexibility is limited as BMF is a privately held company
• BMF comfortably meets local solvency requirements
Balance Sheet Strength - BMF Insurance CompanyBalance Sheet Strength
BCAR (99.6 VaR) 2016 2017 2018e 2019e 2020e
Standard 30% 35% 34% 32% 32%
CAT Stress 25% 30% 29% 27% 27%
40
Balance Sheet Strength - BMF Insurance CompanyInvestments
• Historically: significant exposure to Peripheral European Sovereign Debt
• De-risked portfolio since 2016, leading to improvement in risk-adjusted capitalisation
42% 41%
62%
30% 28%
7%
20% 23% 21%
6% 4% 5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016 2017
Fixed income Peripheral European Sovereign Debt
Public Equity Mutual funds
Property
41
Balance Sheet Strength - BMF Insurance CompanyReserving
• Reserves are reviewed by an internal actuary quarterly and by an external actuary annually
• Small margin in held reserves over external actuaries best estimate
• Loss triangles for the past 10 years indicate stability
• Modest reserve releases in each of the past three years
42
Balance Sheet Strength - BMF Insurance CompanyReinsurance
• Reinsurance includes both proportional and non-proportional arrangements
• 92% of reinsurers are rated “A-” or above• Limited cat risk in local market, earthquake risk is borne by state
reinsurer
43
Balance Sheet Strength - BMF Insurance CompanyKey factors
• BCAR scores in the ‘strongest’ range
• Good internal capital generation to support planned growth
• Stable reserve development• Limited CAT risk
• Comprehensive reinsurance with high quality panel
• Limited financial flexibility• Sovereign risk exposure has
reduced• CRT-2 domicile
44
Balance Sheet Strength - BMF Insurance CompanySummary
• Balance sheet strength assessed as ‘very strong’
• ‘a’ starting point selected.
45
Operating Performance - BMF Insurance CompanyOverall performance
• Good return on equity, averaging 8% over the last five years
16
-11
19 20 21 2223
7
7
7 6 35 6
-2
2
4 2
-3
11
-15
-10
-5
0
5
10
15
20
25
30
35
2013 2014 2015 2016 2017 2018e 2019e
EUR
mill
ions
Technical profit Investment Income
46
Operating Performance - BMF Insurance CompanyUnderwriting
• Diverse product range has supported stable underwriting performance
• Combined ratios average 95% over the past five years
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016 2017Lo
ss ra
tio
PA and HealthMotor and Third-Party LiabilityFire and PropertyMarine
47
Operating Performance - BMF Insurance CompanyUnderwriting
2013 2014 2015 2016 2017 2018e 2019e
BMF Combined ratio 92% 105% 93% 94% 92% 93% 96%
Market average 93% 103% 95% 95% 94% 94% 94%
• Combined ratio largely in line with peers• Expected to increase in 2019 due to higher expenses of new
branch
48
Operating Performance - BMF Insurance CompanyInvestment income
• Investment yield reduced due to sale of high-risk assets
• Reinvestment rate reducing year on year –currently 2.5%
2.0%
2.1%
2.2%
2.3%
2.4%
2.5%
2.6%
2.7%
2.8%
2.9%
3.0%
2013 2014 2015 2016 2017 2018e
Investment Yield
49
Operating Performance - BMF Insurance CompanySummary
• Operating performance is in line with the ‘adequate’ assessment– Stable underwriting performance– Modest investment income reflective of low-risk strategy– Generally in line with peers
50
Business Profile - BMF Insurance CompanyBusiness split
• Well diversified insurance portfolio by line of business
6% 5% 6%
34% 36% 37%
40% 38% 40%
11% 15% 11%9% 6% 6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016 2017
PA and Health Motor and Third-Party LiabilityFire and Property MarineMisc
51
Business Profile - BMF Insurance CompanyGross Written Premium (GWP) development
• GWP increased by 11% during 2017, driven by increase in motor and property business
• High competition from local and foreign players
• Planned growth driven by higher volume from new branch, moderate rate increases
0
50
100
150
200
250
300
350
400
450
500
2013 2014 2015 2016 2017 2018e 2019e
EUR
mill
ions
Gross Written Premium Net Written Premium
52
Business Profile - BMF Insurance CompanyBusiness plans
• Geographically concentrated, only writing local business
• Plans to open a branch in a neighbouring country in 2019 to diversify geographically
• Growth of 10 - 15% expected over each of the next three years, includes growth via new branch
• New branch represents execution risk
53
Business Profile - BMF Insurance CompanySummary
• Business profile supports the ‘limited’ recommendation: – Mid-size player within fragmented market– Strong brand recognition– Diverse product offering– Offset by geographical concentration– Expected diversification via branch comes with execution risk
54
Enterprise Risk ManagementBMF Insurance Company
Principal Areas of Focus – Risk Categories• Product & Underwriting Risk• Reserving Risk• Concentration Risk• Reinsurance Risk• Financial Flexibility Risk
• Investment Risk• Legislative/Regulatory/
Judicial/Economic Risk• Management Risk• Operational Risk• Risk Appetite/Stress Testing
55
Enterprise Risk ManagementBMF Insurance Company
Principal Areas of Focus – Risk Categories• Product & Underwriting Risk• Reserving Risk• Concentration Risk• Reinsurance Risk• Financial Flexibility Risk
• Investment Risk• Legislative/Regulatory/
Judicial/Economic Risk• Management Risk• Operational Risk• Risk Appetite/Stress Testing
56
SummaryBMF Insurance Company
Recommendation: a rating of ‘a-’, stable outlook
57
Long-TermICR
FSR
aaaaa+
A++
aaaa-
A+
a+a
A
a- A-
bbb+bbb
B++
bbb- B+
Q&AInteractive Discussion
58
2018 Methodology Review Seminar
etc.venues St.Paul’s, London
6 November 2018
Slide Number 1Agenda: 2018 Methodology Review Seminar DisclaimerDisclaimerSlide Number 5Slide Number 6Issuer Credit Ratings and Financial Strength RatingsA.M. Best’s Rating Process: RecapA.M. Best’s Rating Process: RecapCountry Risk (EMEA Examples)Balance Sheet Strength: The Baseline AssessmentBuilding Block: Balance Sheet StrengthBest’s Capital Adequacy Ratio (BCRM) GuidelinesReinsurers: BCAR Scores (1 in 250)Insurers BCAR Scores (Mature Markets) (1 in 250)Balance Sheet Strength: Relationship of BCARBalance Sheet Strength: Key CharacteristicsOperating Performance: Distribution of RatingsOperating Performance (5YR AVE)Operating PerformanceOperating Performance:�Return on Equity (5 year average)Operating Performance: Key ConsiderationsBusiness Profile: Distribution of RatingsBusiness Profile: General CharacteristicsEnterprise Risk Management: Distribution of RatingsERM: Risk Framework EvaluationERM: Risk Profile EvaluationSlide Number 28An Updated BCRMAn Updated BCRM: Building BlocksBalance Sheet Strength Assessment: Not just BCARBCAR GuidelinesBaseline Rating from Balance Sheet StrengthOperating Performance & Business ProfileEnterprise Risk Management (ERM)Rating Committee VotingRating Committee MembersIntroduction�BMF Insurance CompanyOverview - BMF Insurance CompanyBalance Sheet Strength - BMF Insurance Company�Balance Sheet StrengthBalance Sheet Strength - BMF Insurance Company�InvestmentsBalance Sheet Strength - BMF Insurance Company�ReservingBalance Sheet Strength - BMF Insurance Company�ReinsuranceBalance Sheet Strength - BMF Insurance Company�Key factorsBalance Sheet Strength - BMF Insurance Company�SummaryOperating Performance - BMF Insurance Company�Overall performanceOperating Performance - BMF Insurance Company�UnderwritingOperating Performance - BMF Insurance Company�UnderwritingOperating Performance - BMF Insurance Company�Investment incomeOperating Performance - BMF Insurance Company�SummaryBusiness Profile - BMF Insurance Company�Business splitBusiness Profile - BMF Insurance Company�Gross Written Premium (GWP) developmentBusiness Profile - BMF Insurance Company�Business plansBusiness Profile - BMF Insurance Company�SummaryEnterprise Risk Management�BMF Insurance CompanyEnterprise Risk Management�BMF Insurance CompanySummary�BMF Insurance CompanySlide Number 58Slide Number 59