a.m. best rating process for rrgs writing medical ...group captives including rrgs • cell captives...
TRANSCRIPT
September 23, 2010
A.M. Best Rating Process for RRGs Writing
Medical Professional Liability
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Tina Bukow-Truman Senior Business
Development Manager
Jim FowlerBusiness Development
Manager
Henry WitmerAssistant Vice President
Ratings Division
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Presentation OutlineOverview of A.M. Best Company
Users and uses of A.M. Best’s Captive Ratings
Timing, cost and agreements for obtaining a rating
Data requirements, expectations and outcomes
Interactive Rating Analysis Process
The role of BCAR (Best’s Capital Adequacy Ratio model)
Key rating factors
Q&A and contact information
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A.M. Best Company Overview
Established: 1899
Leading worldwide: Insurance-focused rating agencyIssuer of captive ratings
Timeline:1906: Began rating property insurers1970s and 80s: Rated first captives2001: Began rating new company formations (start-ups)2002: Published captive rating methodology, with subsequent
revisions and updates
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Risk Retention Group StatsRating Distribution - RRGs
02468
10121416
A++ A+ A A- B++ B+MPLI RRGs All RRGs
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Users and uses of a captive rating
Independent Third Party OversightGreater Transparency Financial Strength and CredibilityRegulatorsReinsurers (terms, conditions, price negotiating and fronting)Group Captives (attract and/or retain members)Benchmarking StandardsIncrease Control of an Insurance ProgramHelp with ongoing Monitoring
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Timing, Cost and AgreementsTiming
8-12 week process
Rating Fees (Initial and Annual)SizeComplexity
Billing• Initial fees paid with RSA and are prorated• Annual fees billed July 1
Rating Services Agreement
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Data Requirements & Expectations
Audited financial statementsActuarial report3 to 5-year projections and business planPML and/or terrorism studyReinsurance and vendor contractsFace-to-face meeting encouragedManagement biographiesAffiliate financial information
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Rating Outcomes
Initial RatingAccept and made publicAppealDecline and no public dissemination
Subsequent Rating Reviews and UpdatesPublicAppealWithdraw from process
Interactive Rating Analysis Process
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Medical Professional Liability Ratings for RRGs
David Blades
Robert Brokaw
Robert Raber
Greg Williams
Henry Witmer
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A.M. Best RatingsAn A.M. Best rating is based on quantitative and qualitative information and interactive discussions. It’s an opinion as to an insurer’s financial strength and ability to meet its ongoing and ultimate obligations to policyholders.
A Financial Strength Rating (FSR) is assigned to a company and monitored throughout the year. At a minimum, there will be a full annual review of each active rating.
Ratings range from A++ to E
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Typical Meeting Agenda
Organization structure
Corporate governance
Capital structure (holding company & operating company)
Underwriting
Marketing and business production
Claims and loss reserves
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Typical Meeting Agenda
Reinsurance/pooling
Investments
Financial data
Catastrophe management framework
Enterprise risk management
Legislative / regulatory / judicial
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How is the rating derived?
ART ratings recognize the unique circumstances of the owners and insureds of these organizations:
• Single parent captives• Group captives including RRGs• Cell captives
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Balance Sheet Strength
Key Rating Factors
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Balance Sheet Strength: Best’s Capital Adequacy Ratio
A risk-adjusted capital model that quantifies a company’s operating risks (net required capital) and evaluates whether a company’s capitalization (adjusted surplus) adequately supports those risks
Net Required Capital reflects following risks: Underwriting riskAsset risk
Reported Surplus + Adjustments to Equity = Adjusted Surplus
Adjusted Surplus / Net Required Capital = BCAR
Leverage Analyses
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Minimum Capital Requirements
Exceptions Based on Overall Analysis
Rating BCAR Score MedianA++ 175 242A+ 160 259A 145 227A- 130 200B++ 115 161B+ 100 140
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Balance Sheet Strength
Operating Performance
Key Rating Factors
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Operating Performance
Underwriting and premium adequacy
Claims and reserve adequacy
Expenses
Investment income
Ratio analyses
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Balance Sheet Strength
Operating Performance
Business Profile
Key Rating Factors
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Business Profile and RRG Rating Issues
Membership concentration
Expansion outside core membership
Potential for rapid growth due to licensing
Dependence on service providers
Independence of board of directors
Value added potential
Services provided to members
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Balance Sheet Strength
Operating Performance
Business Profile
Sponsor/Owner Financial Analysis
Enterprise Risk Management
Management
Key Rating Factors
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Sponsor and Risk Management RRG Rating Issues
Value and volatility of association endorsementsEnterprise risk managementCorrelation of risk issuesFinancial flexibilityDisaster recovery planningQuality and continuity of management and key personnelSuccession planningCycle management
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Contact…
Tina Bukow TrumanBusiness Development(908) 439-2200 ext [email protected]
Jim FowlerManager, Business Development(908) 439-2200 ext. [email protected]
www.ambest.com