a.m. best rating process for rrgs writing medical ...group captives including rrgs • cell captives...

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 5825tina.bukow-truman@ambest.com

Jim FowlerManager, Business Development(908) 439-2200 ext. 5744jim.fowler@ambest.com

www.ambest.com