European Reinsurance Review When The Going Gets Tough

Transcription

1 RESEARCH an Reinsurance Review When The Going Gets Tough Contacts Markus Li Analyst Financial Institutions Analytical Team Linas Grigaliunas Senior Director Head of Financial Institutions Analytical Team Related publications: - an Industry Outlook: 217 and Beyond - China s Reinsurance Industry Review Main Trends: The an reinsurers are holding strong in the difficult operating environment and their credit worthiness remain high. The operating environment is challenging and likely to deteriorate further due to increasing competition levels, high regulatory costs and geopolitical uncertainty and continuing low interest rate environment, partially mitigated by slowly improving macro-economic conditions. The industry is still growing (3.7% in 216), but at rapidly reducing rates (.5% 1H17), due to continuing soft pricing, inflow of new capital and no major Natural Catastrophe (NatCat) events. The risk of loosening underwriting standards is increasing, despite strategic focus on underwriting prudence. In 216, average combined ratio deteriorated to 95% from 91.5% in 215. Profitability is strong, but deteriorating with net income reducing by 17.8% in 216, driven by reducing underwriting margins and declining investment income. The capitalization is very strong. The growing capital levels are strengthening the industry s credit worthiness and loss absorption capabilities, but at the same time are putting strain on profitability. Size matters. The big players are dominating and driving the reinsurance market while the small players are facing increasing headwinds and have to fight to remain relevant and survive. Main Strengths: Strong balance sheets with large and high quality capital, high credit quality and well-diversified investments. Strong risk management practices and well embedded risk culture. Eroding, but still strong and resilient profitability. High geographic and risk diversification. Main Weaknesses: Difficult operating environment. Increasing competition and lack of profitable growth opportunities. Increasing reliance on favorable NatCat loss experience and previous year reserve releases. Outlook: We expect reinsurance industry to maintain its very strong credit characteristics, with the credit strength of the industry driven by the largest players. We forecast operating conditions to remain challenging, especially for the small players, with smaller balance sheets and higher potential of deterioration of credit quality. We estimate the industry to continue growing, but at a slower pace, in the range of 1-2% p.a. We also expect capital to continue increasing and reinforcing industry s strength and at the same time fuelling price competition and diminishing profitability in the shortmedium term. We forecast profitability to decrease, but together with the cost of capital and remain above it for the large players and probably dip below for the smaller players. We also expect evolution of business models and strategies to pick up pace and to provide new opportunities for sustainable and profitable industry development. DAGONG EUROPE CREDIT RATING SRL DAGONG GLOBAL. ALL RIGHTS RESERVED.

2 This report and insights are largely based on our analysis of publicly available financial information of 14 reinsurers domiciled in 1. Despite the global nature of reinsurance, we chose to cover only reinsurers based in, due to their geographic proximity. The sample includes some of the largest global multiline reinsurers, and a range of medium and small reinsurers (multiline, specialist and regional). The industry and the sample are dominated by the top five largest players (Top-5) 2 with a significant gap between them and the rest of the industry, composed of medium and small players (M&S). According to our estimates, the total premiums of the sample companies account to just above 6 of the global reinsurance premiums. In 216, the Top-5 accounted to 91% and the M&S to 9% of the sample s gross premiums written (GPW). In this report, we mainly refer to the aggregated financials of the overall sample, the Top-5 / Top-4 3 and the M&S. The averages are calculated on weighted average basis. 4 Ex.1 GPW (EUR, Bn) Source: Companies annual reports, SNL financial, Dagong Global. 216Y Average Average: Top 5 Average: M&S Challenging operating environment for reinsurers is here to stay We see the operating environment for global and regional reinsurers as challenging and expect it to deteriorate further. The risks related to the regulatory and legal environment are mounting due to its increasing complexity, fast pace of change and expanding cost burden associated with compliance with it. In addition, geopolitical uncertainty and protectionism are increasing across the globe and present significant risks to the industry. Sluggish macroeconomic environment and low growth has been negatively affecting all insurance and reinsurance industry. The economic indicators released earlier in 217, show signs of wider spread economic recovery across the an countries and also the major global economies. It could be the good news the industry was waiting for. However, the time is still too short to identify any new sustainable shift in trends and increasing geopolitical uncertainty makes any forecasts even more difficult. The new regulatory Solvency II (SII) regime has not had much direct impact to the industry, in our view. The reinsurers historically have maintained high capital levels, had sophisticated internal risk management frameworks, strong risk culture and transparent public disclosures. However, indirect effect, via primary insurers utilisation of reinsurance, had mixed results to reinsurers premium volumes and business type. Some insurers increased their reinsurance purchase to strengthen their regulatory solvency ratios. Others reduced it, due to improved awareness about own risk profile, excess capital or increased risk appetite. 1 The 14 reinsurers are listed in the Ex.1. We do not have public interactive relationship with any of them. 2 The Top-5 largest reinsurers based in are Munich Re, Lloyd s of London, Swiss Re, Hannover Re, SCOR. They are also the Top- largest reinsurers in the world. None of them is included in the list of global systemically important insurers (G-SIIs). 3 Where Lloyd s data is not available, we use the data of Top-4 reinsurers. 4 As FX rates volatility increased during the last years and sometimes significantly clouds comparability of the financials between companies reporting in different currencies. Therefore, to better capture the underlying performance and any changes in trends we calculate ratios on the local currency basis. The weighted averages are calculated using weightings of the most appropriate financial items in EUR. an Reinsurance Review 2

3 The competition in the industry is fierce and is further exacerbated by high inflow of new and alternative capital. According to reports from the main brokers in the renewals of 1 st of January, 1 st of April and 1 st of June 217, the reinsurance rates continued to soften at varying rates, with one of the main reasons being increasing alternative capital. As the interest rates and the risk free rate hold at historic lows, we expect the inflow of the new capital to continue, unless the profitability deteriorates significantly or the industry experiences very large man-made of NatCat losses, which could turn the cycle or at least reduce investors risk appetite and new capital inflow. Ex.2 Key Industry Indicators (Bn, EUR) Total assets GPW Shareholder's equity Net income (Right axis) Source: Companies annual reports, SNL financial, Dagong Global. We see a number of other factors changing dynamics in the industry, challenging traditional business models and growth strategies. For example, we see a shift in reinsurance purchasing strategies, where primary insurers are asking for more sophisticated products, better terms and conditions, higher coverage, higher commissions, reinstatement options, etc. Bigger insurers or insurance groups are centralising and optimising reinsurance purchasing, setting up captive reissuance subsidiaries and increasing retention levels. We also observe some primary insurers attempting to write more reinsurance business to support growth, improve risk and geographical diversification. Business development strategies Deteriorating operating environment, reducing profitability and growth are challenging reinsurers business models and strategies. Ability to maintain or improve profitability while in the soft pricing environment is the secret sauce sought by everyone. So far, only few are succeeding and the average net income (NI) fell in 216 by 17.8% and continued falling in 1H17. Our analysis indicates that market players use different strategies to achieve their goals. The most common areas of focus we observed are: o Maintaining prudent underwriting; o Increasing efficiency and managing costs, by better use of innovation, technology, third party capital, etc.; o Maintaining or gaining size, organically or via M&As. In our view, these strategies helped the industry to grow and maintain its profitability in However, the business models have not evolved significantly, the growth continues reducing, while underwriting margins and profits are falling. Therefore, in our view, a more proactive approach is needed for the industry to change its fortunes. an Reinsurance Review 3

4 Ex.3 Key Indicators: Top 4 (Bn, EUR) H1 212H1 213H1 214H1 215H1 216H1 217H1 Total assets GPW Shareholder's equity Net income (Right axis) Source: Companies annual reports, SNL financial, Dagong Global. Growth Despite the continuing soft pricing and unfavorable operating environment, the reinsurance industry is still growing, although at reducing rates. The industry has grown its GPW in the six out the last seven years and delivered 3.7% growth in 216, which we consider good. However, the 1H17 results of the Top-4 show average premiums growing only by.5%. We expect that overall growth for the will be at about 1-2%. Ex.4 GPW Volumes (Bn, EUR) and Average Growth Rates % 6% 4% 2% -2% GPW GPW: Top 5 GPW: M&S GPW Growth: Top 5 GPW Growth: M&S GPW Growth Source: Companies annual reports, SNL financial, Dagong Global. Note: GPW Growth rates are calculated There are very few growth opportunities for the industry and those occurring are quickly utilised by the first movers. In economic growth is low, primary market is stagnating and NatCat penetrations is low. Outside of, there are some windows of opportunities, such as US mortgage reinsurance. The large players are often best positioned to benefit from them, while growth for small reinsurers is much more difficult. The new products and services tailored to serve changing life styles, new business needs and emerging risks, such as cyber, terrorism, climate change, mobile, liability, electric cars and bikes, drones, etc., could provide opportunities for growth. However, it seems that the reinsurance community is taking a back seat and is waiting for a more active approach from the primary sector. Size matters in the reinsurance industry, as it provides higher diversification, better risk absorption, superior underwriting and competing capabilities in the low organic growth, soft pricing and high excess capital environment. Therefore, M&A could be an attractive strategic option. However, we see that the numbers of new deals announced reduced from eleven an Reinsurance Review 4

5 in 215, to nine in 216, and only two so far in 217. High valuations and elevated political and economic uncertainty could be the reasons. Having this in mind, we expect the number of deals for the period to be low. The Top-5 an reinsurers account for the major share of an and global reinsurance premiums. Therefore, it is worth looking at their growth trends individually. We can see that companies growth rates differ widely. During the period of the individual growth rate trends were largely following the trajectory of the average growth rate curve. However, in 216 and 1H17 the growth trends started to diverge. We interpret this as confirmation of increasingly challenging operating environment and increased uncertainty, therefore more diverging business strategies. Ex.5 GPW Growth Rates: Top 5 25% 2 15% 1 5% -5% -1 Munich Re AG Lloyd's of London Swiss Re AG Hannover Re SE SCOR SE Average Source: Companies annual reports, SNL financial, Dagong Global. In addition, the FX volatility also could make more difficult to spot underlying trends. In 217, the Top-4 recorded.5% growth in GPW. However, the real growth rate is likely to be higher due to material EUR appreciation against USD, from USD 1.5 to USD 1.14 end of June 217. This gives impression that insurers doing business in USD while reporting in EUR have lower premium volumes and profitability. Since then the EUR has further strengthened and stood at USD 1.19 on 1st September. If this continues, the full year results could have a significant negative accounting effect on annual basis for companies reporting in EUR and hide the real results. Ex.6 GPW Growth Rates: Top 5 (Half Year) 4 35% 3 25% 2 15% 1 5% -5% 211H1 212H1 213H1 214H1 215H1 216H1 217H1-1 Munich Re AG Lloyd's of London Swiss Re AG Hannover Re SE SCOR SE Average an Reinsurance Review 5

6 Profitability We consider industry s profitability as strong, however it faces significant headwinds. The main challenges are rising from increasing competition, enduring soft pricing and low yield environment, which lead to reducing underwriting margins and decreasing investment returns. The returns have weakened in 216 and 1H17, and we expect this negative trend to continue for the full year 217 and also for 218. The industry s returns historically have been strong, but volatile and even more unstable on individual company basis, mainly due to their exposure to high severity, low frequency tail risks (in particular NatCat). Reinsurers performance is becoming more dependent on favorable NatCat claims occurrence and prior year reserve releases. According to Swiss Re, in 216 NatCat losses returned closer to the long-term average and increased to about USD 54Bn, from USD 38Bn in 215. This was the main reason for the weaker underwriting results in 216. On average industry s NI reduced by 17.8% in 216 after 12.9% growth in 215, squeezed by lower underwriting margins and diminishing investment returns. This negative trend is continuing in 1H17, with the Top-4 players NI on average reducing by 16.3% compared to a reduction of 18.9% in 1H16. However, continuing inflow of new capital indicates that the riskreturn ratio is still attractive. If the trend of weakening profitability is to change in the next year or two, either the interest rates will have to rise or a significant NatCat loss has to occur, or profitability have to deteriorate sharper and faster below a cost of capital of the new capital providers and the big players. Either way the industry and the largest players will survive, but small reinsurers are like to be hurt most. We forecast the underwriting margins to continue to weaken and expenses to remain high in Ex.7 Net Income 216 (Bn, EUR) Y Average Average: Top 4 Average: M&S Despite the weakening of bottom line, the industry has managed to demonstrate high degree of resilience in this difficult operating environment and recorded ROE of 9.4% in 216, down from 11.7% in 215. The Top-4 recorded ROE of 9.8% in 216 and outperformed the M&S with 6.4%. However, it is worth noting that the M&S had relatively higher equity levels, than the Top-4, relative to net premiums earned (NPE) and total assets (TA). This indicates more conservative shareholders equity position and deflates ROE figures. The stronger performance of the Top-4 in 216 was mainly driven by higher investment income and lesser reduction of underwriting margins than for the M&S. an Reinsurance Review 6

7 Ex.8 Profitability Evolution 16% 14% 12% 1 8% 6% 4% 2% ROE ROE: Top 4 ROE: M&S Net income growth: Top 4 (Right Axis) Net income growth: M&S (Right Axis) Net income growth (Right Axis) % 1 75% 5 25% -25% -5 The technical profitability has deteriorated in 216 and this negative trend continues in 1H17. The average combined ratio (CR) has weakened to 95% in 216 from 91.5% in 215. The deterioration came from inflation in loss ratio (LR). The LR reached 62.9% in 216 and was mainly a result of continuing price reduction and return of NatCat claims closer to the historical average. The results of the Top-4 for 1H17 show further weakening of the CR (we do not have consistent data for the M&S). For the full year 217 and 218 we expect the average CR to be in the range of 96-97%. Ex.9 Combined Ratio Evolution 11 15% 1 95% 9 85% 8 75% 7 65% 6 55% 5 211Y 212Y 213Y 214Y 215Y 216Y Total Top 4 M&S Historically the M&S maintained on average stronger technical profitability and CR s than the Top-5, however in the 216 they almost equalised. The M&S reinsurers were much more affected by the claims inflation and reduction in premiums growth with the LR increasing by 6.6pp, while the Top-4 s LR increasing by 4.1pp. In our view, a smaller scale, and lower diversification are the key factors behind the M&S underperformance. However, the historic track record shows that the M&S on average managed better the cost base and the Expense ratio (ER). Still, the smallest players are likely to face more difficulties in competing for business against their larger peers, maintaining underwriting margins and coping with increase in NatCat losses. an Reinsurance Review 7

8 Ex.1 Loss Ratio Evolution 8 75% 7 65% 6 55% 5 45% 4 211Y 212Y 213Y 214Y 215Y 216Y Total Top 4 M&S Despite various efficiency programs and cost optimization, the average expense ratio (ER) has been holding higher over the last few years than the historic average and stood at 32.1% in 216. The main reasons in our view are the high costs related to business acquisition, compliance with regulatory requirements, modeling and investments in innovation. Once again the M&S reinsurers are more negatively affected and in 216 the average M&S ER increased by.7pp, while for the Top-4 it reduced by.8pp. Ex.11 Expense Ratio Evolution 35% 3 25% 2 15% 211Y 212Y 213Y 214Y 215Y 216Y Total Top 4 M&S Investment income has been relatively stable in 216 at about 3.8% 5, indicating resilience of the industry, considering the current historically low yield environment. The results were driven by the Top-4, with a larger size, higher diversification and better asset management capabilities. During the last seven years, and especially in 216, the Top-4 outperformed the M&S, delivering about 4% returns compared to 1.8% for the M&S. The Top-4 s disclosures of 1H17 results indicate deterioration of returns further, to about 3.4% on annualized basis. While there are positive signs of interest rate recovery, with FED increasing its interest rates already twice this year and an sovereigns debt yield curves steepening (with slight increase in the long-term rates), the conditions are still very tough. In the currently volatile and difficult investment environment, we expect the investment returns to weaken further as assets with high historic rates matures and are reinvested at currently low rates. We also expect the large players to continue outperform the M&S. 5 Total return on invested assets (including FX movements) relative to average total invested asset.. an Reinsurance Review 8

9 Ex.12 Return on Average Invested Assets 5% 4% 3% 2% 1% Total Top 4 M&S On individual basis, investment returns differ significantly. In our view, the significant scale and asset management capabilities of the Top-4 enable them to report relatively high and consistent returns, while the total investment returns of the M&S reinsurers show much more instability and are more sensitive to FX rate volatility. Ex.13 Return on Average Invested Assets 8% 7% 6% 5% 4% 3% 2% 1% -1% Capital Munich Re AG Hannover Re SE MAPFRE Re SA Partner Reinsurance SE Caisse Centrale de Reassurance SA AXIS Re SE Deutsche Rückversicherung Schweiz AG Swiss Re AG SCOR SE General Reinsurance AG Aspen UK Limited Sirius International Corporation VIG RE a.s. We consider the industry to have a large capital base and very strong capitalisation, which we regard as one of its major credit strengths. At the end of 216 total shareholders equity of the 14 sample companies accounted to EUR 125.9Bn (or about 26.5% of the global traditional reinsurance capital, as reported by Aon Benfield) and the average 6 regulatory Solvency II ratio stood at 198%. This provides a prudent protection and sufficient capital buffers even in a severe NatCat and market turbulence scenarios and is sufficient to finance new business growth. 6 Calculated on arithmetic average basis. an Reinsurance Review 9

10 The industry s shareholders equity has been growing at varying rates since 21 (with an exception of 213) and in 216 grew by 7%. Historically the growth rates of the Top-5 and the M&S had been closely correlating, however in 216 the M&S grew only by 1% while the Top-5 grew by 8%. We believe this could be explained by already very high capital levels at the M&S reinsurers, in relative terms, and their wish to return excess capital to investors in a deteriorating profitability environment. At the end of 216 about 91% of the total shareholders equity in our sample belonged to the Top-5 reinsurers and 9% to the M&S. Historically the Top-5 reinsurers have been maintaining lower capital in relative terms compare to the M&S. Over the last seven years, the Top-5 players shareholders equity (ShE) relative to net premiums earned (ShE / NPE) was below or around 8 and relative to total assets (ShE / TA) was below or around 15%, while the M&S maintained ShE / NPE at about 115% and ShE / TA at about 2. This could be explained by higher diversification and significantly larger size of the capital base of the Top-5, enabling them to absorb easier any large severity low frequency tail events and therefore maintaining a lower amount of capital in relative terms. In 216, we observed a slight increase in the ratios for the Top- 5, with ShE / NPE and ShE / TA reaching 84% and 16% respectively. Ex.14 Sholders Equity Analysis 12 14% % 1 8% 6 4 6% 4% 2% 2-2% -4% Averager Sh. Equity / NPE Averager Sh. Equity / NPE: Top 5 Averager Sh. Equity / NPE: MS Sh. Equity / Total assets Sh. Equity / Total assets: Top 5 Sh. Equity / Total assets: M&S Sh. Equity Growth (Right Axis) Sh. Equity Growth: Top 5 (Right Axis) Sh. Equity Growth:M&S (Right Axis) Source: Companies annual reports, SNL financial, Dagong Global. Despite continued talks about the overcapacity in the reinsurance industry, we believe its large capital base and high capital ratios are here to stay and are crucial for the industry s long-term sustainability. In addition, it is very important for its value proposition provider of security, by paying claims, in difficult and very difficult times. With changing reinsurance purchasing habits, large and highly capitalised reinsurers are perceived as higher credit quality and more attractive counterparties for cedents. Advanced risk management practices and prudent risk appetite, which helped to produce strong returns, finance growth and maintain high capital levels, have been the corner stones of the industry s success story. Having said that, in the challenging environment that the industry is facing (including difficult operating environment, increasing competition from opportunistic new capacity and decreasing risk based returns, among others), it could be hard to resist the pressure to grow premiums which can lead to looser underwriting, acceptance of higher risks or reduction of shareholder equity, to make relative returns more attractive. In the current low interest rate and low economic growth environment reinsurance sector remains attractive area for investment. It still generates attractive returns and could provide diversification benefit for the primary insurers or financial market investors. Therefore, new players and new and alternative capital continue flowing to the industry. The new entrants not always consider in their pricing the risk-return for the full cycle, and therefore fuel pricing competition (which can backfire if and when the cycle turns). However, it is also important to highlight that the cost of capital also has been reducing due to the low interest rate environment and lack of good investment opportunities. an Reinsurance Review 1

11 In our view, the growth of new capital and soft pricing will continue, in the absence of major NatCat events, but will not weaken the industry significantly in the short-medium term. We expect this to strengthen the industry s solvency levels, but weaken profitability, which eventually will reduce below cost of capital and start to erode capital itself. This will likely to stop or even reverse capital inflows and give a stronger motivational kick for the industry to transform and seek better ways to conduct business and serve the insurance community and global society. EX.15 Solvency II ratios Average: Top 5 Average: M&S Average Source: Company reports, SNL financial. Note: In this graph we used arithmetic average calculation. We see industry s regulatory SII ratios as Strong. The average 7 SII ratio was at 198% as of YE16, while for the Top-5 players it stood at 24. The M&S average stood at 174%, somewhat deflated by a few small subsidiaries owned by medium size global reinsurers with centralised capital strategy and using standard formula, therefore low SII ratios. By its nature, the SII ratios can be volatile, but the currently high levels, in our view, provide a sufficient buffer and can absorb extreme stress scenarios. 7 Calculated on arithmetic average basis. an Reinsurance Review 11

12 DISCLAIMERS NO CONTENT (INCLUDING RATINGS, CREDIT-RELATED ANALYSES AND DATA, VALUATIONS, MODEL, SOFTWARE OR OTHER APPLICATION OR OUTPUT THEREFROM) OR ANY PART THEREOF ( CONTENT ) MAY BE MODIFIED, REVERSE ENGINEERED, REPRODUCED OR DISTRIBUTED IN ANY FORM BY ANY MEANS, OR STORED IN A DATABASE OR RETRIEVAL SYSTEM, WITHOUT THE PRIOR WRITTEN PERMISSION OF DAGONG EUROPE CREDIT RATING SRL. DAGONG EUROPE CREDIT RATING SRL DOES NOT INTEND TO ASSUME, AND IS NOT ASSUMING, ANY RESPONSIBILITY OR LIABILITY TO ANY PARTY ARISING OUT OF, OR WITH RESPECT TO, THIS CONTENT. THIS CONTENT IS NOT INTENDED TO, AND DOES NOT, FORM A PART OF ANY CONTRACT WITH ANYONE, EITHER DIRECTLY OR INDIRECTLY. THE CONTENT SHALL NOT BE USED FOR ANY UNLAWFUL OR UNAUTHORIZED PURPOSES. DAGONG EUROPE CREDIT RATING SRL DO NOT GUARANTEE THE ACCURACY, COMPLETENESS, TIMELINESS OR AVAILABILITY OF THE CONTENT AND IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS (NEGLIGENT OR OTHERWISE), REGARDLESS OF THE CAUSE, FOR THE RESULTS OBTAINED FROM THE USE OF THE CONTENT. USERS OF RATINGS USERS OF RATINGS SHOULD BE AWARE THAT DAGONG EUROPE CREDIT RATING SRL S RATINGS ARE OPINIONS REFLECTING THE ABILITY OF AN ENTITY OR A SECURITIES ISSUE TO MEET FINANCIAL COMMITMENTS SUCH AS INTEREST, PREFERRED DIVIDENDS AND REPAYMENT OF PRINCIPAL, IN ACCORDANCE WITH THEIR TERMS. IN PARTICULAR, THE USERS OF RATINGS SHOULD BE AWARE THAT A CREDIT-RELATED AND OTHER ANALYSES, INCLUDING RATINGS, AND STATEMENTS IN THE CONTENT ARE STATEMENTS OF OPINION AS OF THE DATE THEY ARE EXPRESSED AND NOT STATEMENTS OF FACT. DAGONG EUROPE CREDIT RATING SRL S OPINIONS, ANALYSES AND RATING ACKNOWLEDGEMENT DECISIONS (DESCRIBED BELOW) ARE NOT RECOMMENDATIONS TO PURCHASE, HOLD OR SELL ANY SECURITIES OR TO MAKE ANY INVESTMENT DECISIONS, AND DO NOT ADDRESS THE SUITABILITY OF ANY SECURITY. THE CONTENT SHOULD NOT BE RELIED ON AND IS NOT A SUBSTITUTE FOR THE SKILL, JUDGMENT AND EXPERIENCE OF THE USER, ITS MANAGEMENT, EMPLOYEES, ADVISORS AND/OR CLIENTS WHEN MAKING INVESTMENT AND OTHER BUSINESS DECISIONS. DAGONG EUROPE CREDIT RATING SRL ASSUMES NO OBLIGATION TO UPDATE THE CONTENT FOLLOWING PUBLICATION IN ANY FORM OR FORMAT. ISSUING RATINGS CREDIT RATINGS DO NOT DIRECTLY ADDRESS ANY RISK OTHER THAN CREDIT RISK. IN PARTICULAR, RATINGS DO NOT DEAL WITH THE RISK OF LOSS DUE TO CHANGES IN INTEREST RATES AND OTHER MARKET CONSIDERATIONS. DAGONG EUROPE CREDIT RATING SRL CANNOT GUARANTEE THE FULL ACCURACY OF ALL INFORMATION PROVIDED BY AN ENTITY FOR THE RATING PROCESS. IN ISSUING AND MAINTAINING ITS RATINGS, DAGONG EUROPE CREDIT RATING SRL RELIES ON FACTUAL INFORMATION IT RECEIVES FROM ISSUERS AND UNDERWRITERS AND FROM OTHER SOURCES DAGONG EUROPE CREDIT RATING SRL BELIEVES TO BE CREDIBLE. DAGONG EUROPE CREDIT RATING SRL DOES NOT PERFORM AN AUDIT AND UNDERTAKES NO DUTY OF DUE DILIGENCE OR INDEPENDENT VERIFICATION OF ANY INFORMATION IT RECEIVES. WHERE DAGONG EUROPE CREDIT RATING SRL DECIDES, AT ITS OWN DISCRETION, TO PERFORM AN ENHANCED FACTUAL INVESTIGATION OR AN INDEPENDENT VERIFICATION ON THE INFORMATION RECEIVED, THE USERS SHOULD BE AWARE THAT NEITHER AN ENHANCED FACTUAL INVESTIGATION NOR ANY THIRD-PARTY VERIFICATION CAN ENSURE THAT ALL OF THE INFORMATION DAGONG EUROPE CREDIT RATING SRL RELIES ON IN CONNECTION WITH A RATING WILL BE ACCURATE AND COMPLETE. ULTIMATELY, THE ISSUER AND ITS ADVISERS ARE RESPONSIBLE FOR THE ACCURACY OF THE INFORMATION THEY PROVIDE TO DAGONG EUROPE CREDIT RATING SRL AND TO THE MARKET IN OFFERING DOCUMENTS AND OTHER REPORTS. RELATIONSHIP WITH ANY ISSUER DAGONG EUROPE CREDIT RATING SRL DOES NOT HAVE A FIDUCIARY RELATIONSHIP WITH ANY ISSUER, SUBSCRIBER OR OTHER INDIVIDUAL. NOTHING IS INTENDED TO OR SHOULD BE CONSTRUED AS CREATING A FIDUCIARY RELATIONSHIP BETWEEN DAGONG EUROPE CREDIT RATING SRL AND ANY ISSUER OR BETWEEN DAGONG EUROPE CREDIT RATING SRL AND ANY USER OF ITS RATINGS. RATINGS MAY BE CHANGED, QUALIFIED, PLACED ON RATING WATCH OR WITHDRAWN AS A RESULT OF CHANGES IN, ADDITIONS TO, CORRECTNESS OF, UNAVAILABILITY OF OR INADEQUACY OF INFORMATION OR FOR ANY REASON DAGONG EUROPE CREDIT RATING SRL DEEMS SUFFICIENT. DAGONG EUROPE CREDIT RATING SRL DOES NOT PROVIDE TO ANY PARTY ANY CONSULTANCY SERVICE, FINANCIAL ADVICE OR LEGAL, AUDITING, ACCOUNTING, APPRAISAL, VALUATION OR ACTUARIAL SERVICES. A RATING SHOULD NOT BE VIEWED AS A REPLACEMENT FOR SUCH ADVICE OR SERVICES. THE ASSIGNMENT OF A RATING BY DAGONG EUROPE CREDIT RATING SRL SHALL NOT CONSTITUTE CONSENT BY DAGONG EUROPE CREDIT RATING SRL TO USE ITS NAME AS AN EXPERT IN CONNECTION WITH ANY REGISTRATION STATEMENT, OFFERING DOCUMENT OR OTHER FILINGS UNDER ANY RELEVANT SECURITIES LAWS. 217 DAGONG GLOBAL. ALL RIGHTS RESERVED. an Reinsurance Review 12