BEST S SPECIAL REPORT

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1 BEST S SPECIAL REPORT Our Insight, Your Advantage. Issue Review September 25, 2015 There is a greater focus on emerging markets to enable faster growth, higher margins and more capital efficient businesses. European Insurers Continue Overseas Expansion Drive but More Focused in Approach European insurers are developing their overseas operations as they come under investor pressure to improve margins at a time when traditional domestic markets remain mature and saturated. As insurers also face investment challenges from the very low interest rate environment, well-capitalised companies are increasingly looking for innovative ways to deploy capital. In the past year, there have been many instances where reinsurers have returned capital to shareholders; for example through special dividends, increased pay-outs or share buy-backs. Medium-sized companies have also used excess funds to finance the recent wave of mergers or acquisitions. While there has been some industry consolidation involving larger primary groups, for these companies the need to create scale is not a key driver and instead there is a greater focus on emerging markets to enable faster growth, higher margins and more capitalefficient businesses. As Exhibits 1 and 2 show, European insurance markets have tended to be stagnant, with muted premium growth in Italy was an exception owing to a sharp increase in demand for life products, with 23% growth, against a 3% decline for non-life business. Insurance Exhibit 1 European Insurers & Emerging Markets European Union Economies Key Data (Economic) (2014) Country Gross Domestic Product (USD billions) Population (millions) Real GDP per Capita (USD) Change in Real GDP Insurance Market Penetration France 2, , % 9.5% Germany 3, , % 6.6% Italy 2, , % 9.1% Spain 1, , % 5.1% United Kingdom 2, , % 11.9% Notes: Premium figures given in US dollars to allow for comparison across currencies and are based on the average exchange rates for the financial year. Sources: International Monetary Fund, World Economic Outlook Database, April 2015; Swiss Re, sigma No4/2015; A.M. Best data and research Analytical Contact: Carlos Wong-Fupuy Tel: +44 (0) Carlos.Wong-Fupuy@ambest.com Writer and Researcher: Yvette Essen Tel: +44 (0) Yvette.Essen@ambest.com Editorial Manager: Richard Hayes Tel: +44 (0) Richard.Hayes@ambest.com SR Exhibit 2 European Insurers & Emerging Markets European Union Economies Key Data (Insurance) (2014) 2014 (USD billions) Market Ranking Total Premium 2014 (Global) Life Premium Non-Life Premium Growth 2013 Country France % 7.2% 1.6% 6.7% Germany % 3.3% 2.3% 6.6% Italy % 23.1% -2.7% 17.3% Spain % -2.5% 0.9% 0.7% United Kingdom % 7.4% 8.7% -1.1% Notes: Premium figures given in US dollars to allow for comparison across currencies and are based on the average exchange rates for the financial year. Source: Swiss Re, sigma No4/2015 and No3/2014 Copyright 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. No part of this report or document may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of the A.M. Best Company. For additional details, refer to our Terms of Use available at the A.M. Best Company website:

2 penetration was 11.9% for the United Kingdom, and while it was 5.1% for Spain, this is still considerably higher than for many other countries outside of the European Union (EU), albeit not growing. In general, there are certain countries that are proving particularly attractive to European insurers because of their low insurance penetration and growing gross domestic product (GDP). In the emerging market economies targeted by the largest European participants, insurance penetration tends to be in the low single digits. A.M. Best has highlighted some of the major countries identified by European insurers, noting that in Asia Pacific, besides China, no single country dominates (see Exhibits 3 and 4). Economic development is expected to encourage the emergence of a middle class, which in turn is projected to increase demand for life products particularly savings offerings and non-life insurance, such as retail insurance linked to motor and household protection. Exhibit 3 European Insurers & Emerging Markets Emerging Market Economies Key Data (Economic) (2014) Country Gross Domestic Product (USD billions) Population (millions) Real GDP per Capita (USD) Change in Real GDP Insurance Market Penetration Brazil 2, , % 3.6% Chile , % 4.2% China 10, , , % 3.2% Colombia , % 2.5% India 2, , , % 3.4% Mexico 1, , % 2.1% Poland , % 3.2% Russia 1, , % 1.4% Turkey , % 1.4% Notes: Premium figures given in US dollars to allow for comparison across currencies and are based on the average exchange rates for the financial year. Sources: International Monetary Fund, World Economic Outlook Database, April 2015; Swiss Re, sigma No4/2015; A.M. Best data and research Exhibit 4 European Insurers & Emerging Markets Emerging Market Economies Key Data (Insurance) (2014) 2014 (USD billions) Market Ranking Total Premium 2014 (Global) Life Premium Non-Life Premium Growth 2013 Country Brazil % 2.8% 3.8% 0.5% Chile % -8.4% -4.5% 4.2% China % 15.4% 19.5% 14.1% Colombia % -21.2% 3.2% 13.4% India % 6.4% 10.4% -1.0% Mexico % 1.0% -1.7% 13.9% Poland % -11.0% 0.7% -6.0% Russia % 6.1% -11.0% 9.2% Turkey % -16.2% -5.4% 14.6% Notes: Premium figures given in US dollars to allow for comparison across currencies and are based on the average exchange rates for the financial year. Source: Swiss Re, sigma No4/2015 and No3/2014 A.M. Best s analysis of the ten largest European insurance groups ranked according to gross written premium (GWP) and their expansion strategies outside their core markets (see Exhibit 5) has identified the following territories as particularly important. The key high growth markets (HGM) can be split into Asia Pacific, Central Eastern Europe (the CEE), Latin America and Turkey. For the purposes of this report, HGM refers to typically underdeveloped insurance markets, characterised by their low penetration but fast-growing economies (usually 2

3 emerging economies), which the main European insurance groups have clearly identified as areas for expansion and can be measured separately in their segmental reporting. Exhibit 5 European Insurers & Emerging Markets Large Insurance Groups Regional Focus in Key High Growth Markets (2014) Rank AMB No Company Country of Domicile Gross Premium Written (2014) (EUR millions) Asia Pacific Central Eastern Europe Latin America Turkey AXA S.A. France 86, Allianz SE Germany 73, Assicurazioni Italy 66,236 Generali S.p.A Zurich Insurance Switzerland 45,068 Group Ltd Prudential plc UK 41, CNP Assurances France 30, Credit Agricole Assurances 1 France 29, Talanx AG Germany 27, Aviva plc UK 27, MAPFRE S.A. Spain 22,401 Notes: 1: Out of EUR 30bn, international business was EUR 4bn from six countries (namely European countries and Japan) Asia Pacific In Asia Pacific, China stands out as attractive to European insurers, including AXA and Prudential, with its GDP growth of 7.4% in 2014 and vast population. China is the fourth largest insurance market in the world, but is still considered to offer great potential. There is a strong savings culture, and the expanding middle class is forecast to lead to greater demand for life insurance and savings, with consumers seeking to protect their cars and household assets. However, a number of challenges face insurers operating in China, including regulatory hurdles whereby there are limits on foreign investment resulting in a lack of full control. State-sponsored entities continue to be dominant. Due to regulatory restrictions, European insurers tend to be present on a regional basis through licences in particular provinces and via joint ventures, as opposed to through a nationwide strategy. Going forward, insurers will be wary of the health of China s economy and the pace of its future growth, particularly given the volatility in the Shanghai Composite Index over the past few months. Elsewhere in Asia Pacific, India and Indonesia both offer various attractions, particularly due to their large populations. For example, Prudential and Allianz are participants in India, with Aviva announcing in August 2015 its intention in the following six months to increase its stake in Aviva India (its joint venture with Dabur Investment Corporation) from the previous 26% to 49% now that foreign direct investment (FDI) limits are permitted at this level. As with China, expansion drivers in Southeast Asia include economic growth, an emerging middle class and high savings rates, as well as the introduction of compulsory lines of business. Nevertheless, these countries all come with their own challenges. For example, A.M. Best notes that while in India, the insurance sector has been further liberalised, FDI beyond 26% is still subject to government approval. Insurers accessing Malaysia and Indonesia may need to consider a takaful platform, given the large Islamic communities in these countries. The Philippines is viewed as offering potential as it has low insurance penetration, although market participants may have to access the country through microinsurance, which typically involves significant administrative costs and depends on government-sponsored programmes. 3

4 Central Eastern Europe (the CEE) In the CEE, Russia has historically drawn the interest of several major European insurers. The main driver of insurance growth has been the roll-out of compulsory business (largely motor and medical). Previously, higher oil prices have resulted in more corporate risks, an area where some insurers see potential. As there has tended to be insufficient internal capacity, infrastructure risks have typically gone to the international (re)insurance markets. In recent years, there has been an attempt to raise the standards in the Russian insurance sector, moving away from being an overcrowded and highly competitive market, in which many domestic companies were not proper insurers but tax optimisation vehicles. Significant increases in minimum capital requirements have driven industry consolidation and resulted in the disappearance of smaller players with low levels of capital. The Russian insurance market, however, now faces new challenges. Motor insurance is particularly difficult and several insurers have exited this line of business following the extension in 2012 of consumer protection laws to insurance contracts, which has led to a substantial increase in fraud. The recent volatility in commodity prices has weighed heavily on the insurance sector, as has political uncertainty, with sanctions remaining a latent issue. In the second quarter of 2015, Russia s economy contracted by 4.6% year-on-year, its largest drop in six years. The Central Bank of the Russian Federation has been taking an aggressive stance on interest rates in a bid to protect the strength of the rouble. Meanwhile, currency devaluation has caused real incomes to drop, leading to lower consumer spending. European insurers have also explored opportunities in Poland, and to a lesser extent Ukraine, the Czech Republic and Romania. As Poland is part of the EU, ease of doing business is a key factor, as well as the proximity of the country and its strong economy. A number of the largest European insurers are present in Poland, although the dominant company continues to be state-owned Powszechny Zakład Ubezpieczeń (PZU Group). Latin America Latin America is considered a hotspot by European insurers and reinsurers. Virtually all the companies followed by A.M. Best, both non-life and life, have a strategic plan to obtain a foothold in this region. Key players include MAPFRE and Zurich. The size of Brazil s and Mexico s economies and population, along with their emerging middle classes, have resulted in these two countries attracting strong interest. Brazil s insurance market is the largest in Latin America, although there is a divergence of performance. For example, the Big Four European reinsurers Munich Re, Swiss Re, Hannover Re and SCOR have all been very successful in Latin America. There is a significant difference, however, between primary insurers and reinsurers, which can provide a value-added service and structure reinsurance protection in a more profitable way as they face less competition. For primary companies, motor is the predominant line of business, but rates remain inadequate. Companies are reporting losses, re-pricing risks and shrinking their motor books. While the Brazilian market has enjoyed gradual liberalisation, at the same time, the European insurers that have been more successful have relied on distribution agreements with banks, which are partly or fully government-owned. These include tie-ups between Banco do Brasil and MAPFRE, and CNP Assurances and Caixa Econômica Federal (one of Brazil s largest banks). Insurers have also attempted to establish themselves in other Latin American countries, namely Chile and Colombia. Both are considered attractive as they are perceived to have stable 4

5 regulatory environments, a natural advantage to large global companies. Chile s economy has been stronger than Brazil s, with a 1.8% growth in GDP in 2014, compared to Brazil s modest 0.2% rise. However, there is less opportunity for insurance demand as Chile and Colombia have smaller economies than Brazil, although Brazil is facing worsening economic conditions, with inflation at 9.6% (a level not seen since 2003). In July 2015, the Banco Central do Brasil raised interest rates to a policy rate of 14.25%, the sixteenth rise in two years. Meanwhile, despite their material size, Venezuela and Argentina are less of a focus for overseas insurers as they suffer from perceived severe political and economic instability that affect foreign exchanges and there are potential restrictions to the movement of capital. Turkey Many of the major European insurers are present in Turkey, including AXA, Allianz, Talanx and MAPFRE. Its relative proximity to Europe is a draw, and the liberalisation of the insurance market and few restrictions have previously provided opportunities to buy Turkish companies, largely on the non-life side. Turkey s insurance market has been largely privatised. However, performance overall has been challenging as it is dominated by motor insurance. In particular, motor third-party liability is very competitive. Compared to the other markets that European insurers have identified as core areas for growth, Turkey is small and in 2014 was ranked the 39th largest insurance market in the world. Common Challenges Faced with International Expansion A.M. Best notes that while previously some European insurers were expanding in many territories, nowadays they are being more focused and cautious regarding specific regions as not all overseas strategies have proven successful. The major participants are demonstrating increased discipline, for example, by attempting to shrink their exposures to underperforming risks and cut back on business subject to the most aggressive price competition. While European insurers appreciate they need to take a longer-term view to establish themselves in new territories, there have been some regions where an exit strategy has been adopted. Some of the common challenges encountered by European insurers have been identified above in the evaluation of specific risks facing different countries. These include market competition and limited control of joint ventures, as well as political and economic risks within a given territory. Furthermore, there is the danger of treating each region as a homogenous bloc, which in many cases is misleading. Insurers may face regulatory risks, for example, a need to invest their assets locally, but financial markets may not be as mature as in a company s domestic territory. In relation to regulatory capital requirements, A.M. Best does not expect these to be a challenge for European insurers as many of the emerging markets identified are either liberalised and open, or apply less onerous requirements compared to European standards. Therefore, operating overseas may offer capital efficiency advantages, although at the same time insurers must reserve adequately for additional risk exposure, such as for natural catastrophes. They must also account for the fact that many (re)insurers have less sophisticated risk modelling and pricing tools for such events. Where an insurer is involved in a takeover, merger or joint venture with a local entity, there could be integration difficulties linked to cultural differences and ease of doing business. A company that is being taken over may not be listed and can often be family owned, leading to potential issues regarding valuations and the future role for existing management. In many cases, it will have become a target because of underperformance, leading to a debate as to 5

6 whether a turn-around strategy should involve existing staff with local knowledge, or new senior appointments from Europe. A.M. Best also notes that in many instances, acquisitions are made largely to obtain licences in a given country. While countries with low insurance penetration are often regarded as offering potential growth, lack of insurance demand is a challenge. Frequently, insurers engaging in overseas expansion are large and want to create sufficient scale to justify their presence, so competition and margins can become squeezed. Shareholder and investor perceptions can differ significantly, and expectations must be managed accordingly. European Insurers Strategies and Performance A.M. Best s in-depth analysis of the ten largest European insurance groups performance in key HGM compared to overall performance can be seen in Exhibit 6. The data is based on 2014 results and is a snapshot of the year s performance, but is in general, reflective of the challenges and opportunities insurers face in emerging territories. While the biggest insurers tend to consider overseas expansion to be key, there are some exceptions. For example, Credit Agricole Assurances, the seventh largest European insurer, has no noteworthy presence in territories that its rivals consider to be HGM. Meanwhile, growth outside domestic markets is fundamental for others. In 2014, both MAPFRE and Prudential relied on emerging markets for almost half of their business, while a third of Zurich s life and Talanx s non-life premium originated from HGM. In general, margins for life business tend to be broadly higher for emerging markets when compared to a company s total life margins. This reflects the types of products being offered in HGM, mainly unit-linked based, short-to-medium term and with small guarantees and options. These are often less capital intensive due to the high proportion of investment risk being borne by the policyholder. In 2014, Europe s largest insurers have experienced mixed fortunes on their non-life operations, with less of a clear pattern emerging when comparing the combined operating ratio (COR). Profitability is not necessarily better in a HGM compared to a company s domestic market. To an extent, this is a consequence of factors in individual countries, for example with Russian business being particularly challenging owing to competitive motor rates and pricing pressures for Brazilian risks. Exhibit 6 European Insurers & Emerging Markets Focus on High Growth Markets (HGM) (2014) Combined Ratio HGM Combined Ratio Total Company 1 P/C Share HGM Life Share HGM Life Margin HGM Life Margin Total AXA S.A. 16.0% 98.7% 97.6% 17.5% 49.0% 34.0% Allianz SE 9.0% 111.3% 94.3% 15.1% 3.6% 2.4% Generali S.p.A. 14.8% 96.9% 93.8% 5.9% 21.9% 24.0% Zurich Insurance Group Ltd. 12.3% 104.6% 97.3% 33.2% 26.5% 22.1% Prudential plc n/a n/a n/a 48.1% 52.0% 46.0% CNP Assurances n/a n/a n/a 14.7% 32.1% 11.9% Credit Agricole Assurances n/a n/a n/a n/a n/a n/a Talanx AG % 96.4% 101.7% 18.6% 6.9% 1.9% Aviva plc n/a n/a n/a 10.2% 7.6% 4.1% MAPFRE S.A % 95.3% 95.7% 47.7% 17.7% 12.0% Notes: Figures are not always comparable between companies because in some cases different assumptions were used. 1: All life indices based on APE except for Allianz, Aviva and MAPFRE (which are based on VNB, PVNBP and GWP/profits, respectively). 2: Excludes reinsurance business from Hannover Re. Life HGM refers to the international segment which includes Italy. 3: MAPFRE excludes MAPFRE Re 6

7 AXA AXA s HGM presence through its life and savings business is mainly in Asia (Hong Kong, Thailand, Indonesia, China, Singapore, the Philippines and India). Its life and savings business in HGM resulted in an annual premium equivalent (APE) of 17.5% in 2014, while new business margins (NBM) was 49% in emerging markets better than across the company which had an average of 34%. With regards to AXA s non-life business, HGM was significant, accounting for 16% of revenues, with a focus on Mexico, Turkey, the Gulf region, Colombia, Hong Kong, Morocco, Singapore and Malaysia. The COR was slightly higher for emerging markets than the average across the group at 98.7% versus a total of 97.6%. Allianz For Allianz, on the property casualty (P/C) side, the CEE and Latin America are its main overseas areas, together representing 9% of total non-life business. However, in 2014 there was a downscaling of its Russian operations, and a strong decline in Brazil (although this was more than offset by Argentina and Colombia). Material pressures have become evident in its emerging markets business. Allianz is taking corrective action in Russia after being loss-making in the CEE, with a COR of 106.8%. This relates predominantly to its motor portfolio in Russia, and the group is now exiting retail P/C to focus on corporate business. Brazil s COR was 125.5% reflecting IT issues and reserve strengthening, and re-pricing and re-underwriting is ongoing. These factors resulted in the COR for HGM at 111.3%, compared to a group COR of 94.3%. On the life and health side, Allianz has a material presence in Asia-Pacific, with no country dominating. Its presence in the CEE is relatively small, with recent growth focused largely on investment products. Unlike its P/C business, Allianz is showing a much better margin on new business in HGM than in more mature markets. For example, life and health revenues in Asia Pacific were 8.5% of total group revenues, with a NBM of 3.2% compared to an average of 2.4%. Generali Generali s P/C business in the HGM of the CEE, Latin America and Asia represented almost 15% of GWP in A.M. Best notes Asia still needs scale and Generali s business in the CEE has been much stronger than that of Latin America with CORs of 87.7% for the CEE versus 113.3% for Latin America and 97.6% for Asia (although this was much better than the 120% achieved in Asia in 2013 following large claims in Thailand and Japan). The average total COR for the group was 93.8%, compared to 96.9% for HGM. Life inflows and technical reserves from the CEE, Asia and Latin America were 5.8% of total life business. Generali took over full ownership of Generali PPF Holding in the CEE at the beginning of this year, to enable it to speed up its pace in further developing and improving its competitive position in the region. Generali has enjoyed a very strong performance in the CEE, with an APE margin of 32.8%, compared to a group total of 24%. In April 2015, it made executive changes to try to accelerate Generali s growth ambitions in Asia. Zurich Zurich relies heavily on emerging markets for its life business, with a third (33.2%) of its portfolio coming from Asia Pacific, the Middle East, and Latin America. Zurich is performing well with life margins in its HGM of 26.5%, above that of the group (22.1%). In Latin America, its main challenge will be its dependence on its distribution arrangement with Santander, as the majority of its business from the region came through this channel. 7

8 Zurich s performance on the P/C side has been challenge, with a COR of 104.6%, compared to a group total of 97.3%. To improve profitability, the company has completed the exit of its Russia retail business and has taken re-pricing actions in Latin America but says further improvements are required, especially in Brazil. Prudential Prudential s Asian operations accounted for 48.1% of the life assurer s APE in The company has continued to grow in the region, and is not in any particular country but present in Hong Kong, Indonesia, Taiwan, China, India and Korea. Prudential has found its Asian operations to have light capital requirements, compared to its U.K. and U.S. businesses. Asian products tend to be savings offerings, such as unit-linked investments with low guarantees which are much more capital efficient with higher margins and shorter pay back periods. Margins were consequently higher in Prudential s HGM at 52% of APE, compared to 46% for total life business. CNP Assurances CNP Assurances second largest market outside France is Brazil, where it offers largely nonlife insurance for motor and personal risks. CNP s partner is Caixa Econômica Federal, the country s second-biggest state-owned bank. CNP has a target of at least 50% premium growth by 2019 and a greenfield operation in Colombia. Owing to low interest rates affecting traditional products in Europe, the contribution to profits from its Latin American business is significantly higher than its income proportion. In Latin America, premiums equated to 9.3% of group premiums while the APE new business margin for business in this region was 32.1%. In comparison, the APE margin was 9% for France and 2.8% for the rest of Europe excluding France (mainly due to the impact of lower interest rates on traditional savings products), with the APE for the total group at 11.9%. Credit Agricole Assurances Credit Agricole does not have a significant presence in emerging markets, with EUR 2.6 billion of revenue at half-year 2014, from its international division out of a total of EUR 15 billion. The French insurance group states its international markets include Italy, Japan, Spain, Greece, Luxembourg and Poland. For the purposes of this analysis, A.M. Best has not considered these countries to be high growth territories. Talanx Talanx s retail international operations are in Brazil, Mexico, Poland and Turkey. The group offers life business in Poland (and Italy) and non-life in the other markets. In 2015, Talanx exited from Bulgaria and Ukraine selling businesses in both countries as there was no expectation of short-term growth with markets shrinking over the last five years. In general, the retail international business has performed well with a COR 96.4%, with the only underperforming country Turkey posting a COR of 103.2%, improving marginally from 105.9% in Talanx considers Latin America to offer opportunities, particularly in Brazil and Mexico. In February 2015 it acquired Inversiones Magallanes, Chile, paying EUR 180 million in cash, making Talanx the fifth largest composite insurer and second biggest motor insurer in the country. Aviva Aviva s growth markets of Poland, Turkey and Asia expanded by 25% in 2014 and now make up 22% of the insurer s value of new business (VNB). However, A.M. Best notes that this growth 8

9 was from relatively low levels. China s VNB increased by 100% due to strong sales of protection business. MAPFRE MAPFRE is heavily dependent on emerging markets with 48.8% of its P/C and 47.7% of its life business coming from HGM. It has established itself as the market leader in non-life in Brazil and Puerto Rico and in 2014, experienced a significant increase in business volumes in Brazil, resulting from Banco do Brasil s sales campaigns. Premiums from its operations in Brazil, Latin America and Asia Pacific (which includes China and the Philippines) represented 40.7% of premiums in These high growth regions, plus Turkey, contributed more than a half of total profits, equating to 55.2% of MAPFRE s results before tax and minority interests. MAPFRE s CORs for all regions were below 100%, with an average of 95.7%. The exception was for its North American business at 102%. 9

10 Published by A.M. Best Company Special Report CHAIRMAN & PRESIDENT Arthur Snyder III EXECUTIVE VICE PRESIDENT Larry G. Mayewski EXECUTIVE VICE PRESIDENT Paul C. Tinnirello SENIOR VICE PRESIDENTS Douglas A. Collett, Karen B. Heine, Matthew C. Mosher, Rita L. Tedesco A.M. BEST COMPANY WORLD HEADQUARTERS Ambest Road, Oldwick, NJ Phone: +1 (908) WASHINGTON OFFICE 830 National Press Building th Street N.W., Washington, DC Phone: +1 (202) A.M. BEST AMÉRICA LATINA, S.A. de C.V. Paseo de la Reforma 412 Piso 23 Mexico City, Mexico Phone: A.M. BEST EUROPE RATING SERVICES LTD. A.M. BEST EUROPE INFORMATION SERVICES LTD. 12 Arthur Street, 6th Floor, London, UK EC4R 9AB Phone: +44 (0) A.M. BEST ASIA-PACIFIC LTD. Unit 4004 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong Phone: A.M. BEST ASIA-PACIFIC (SINGAPORE) PTE. LTD. 6 Battery Road, #40-02B, Singapore Phone: DUBAI OFFICE* (MENA, SOUTH & CENTRAL ASIA) Office 102, Tower 2 Currency House, DIFC PO Box , Dubai, UAE Phone: *Regulated by the DFSA as a Representative Office A Best s Financial Strength Rating is an independent opinion of an insurer s financial strength and ability to meet its ongoing insurance policy and contract obligations. It is based on a comprehensive quantitative and qualitative evaluation of a company s balance sheet strength, operating performance and business profile. The Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance policy and contract obligations. These ratings are not a warranty of an insurer s current or future ability to meet contractual obligations. The rating is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer s claims-payment policies or procedures; the ability of the insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. A Financial Strength Rating is not a recommendation to purchase, hold or terminate any insurance policy, contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. A Best s Debt/Issuer Credit Rating is an opinion regarding the relative future credit risk of an entity, a credit commitment or a debt or debt-like security. It is based on a comprehensive quantitative and qualitative evaluation of a company s balance sheet strength, operating performance and business profile and, where appropriate, the specific nature and details of a rated debt security. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. These credit ratings do not address any other risk, including but not limited to liquidity risk, market value risk or price volatility of rated securities. The rating is not a recommendation to buy, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. Any and all ratings, opinions and information contained herein are provided as is, without any expressed or implied warranty. A rating may be changed, suspended or withdrawn at any time for any reason at the sole discretion of A.M. Best. In arriving at a rating decision, A.M. Best relies on third-party audited financial data and/or other information provided to it. While this information is believed to be reliable, A.M. Best does not independently verify the accuracy or reliability of the information. A.M. Best does not offer consulting or advisory services. A.M. Best is not an Investment Adviser and does not offer investment advice of any kind, nor does the company or its Rating Analysts offer any form of structuring or financial advice. A.M. Best does not sell securities. A.M. Best is compensated for its interactive rating services. These rating fees can vary from US$ 5,000 to US$ 500,000. In addition, A.M. Best may receive compensation from rated entities for non-rating related services or products offered. Data sourced from the BestLink system is retrieved around the time of the report creation and is subject to revision. A.M. Best s Special Reports and any associated spreadsheet data are available, free of charge, to all Best s Insurance News & Analysis subscribers. Nonsubscribers can purchase the full report and spreadsheet data. Special Reports are available through our Web site at or by calling Customer Service at (908) , ext Briefings and some Special Reports are offered to the general public at no cost. For press inquiries or to contact the authors, please contact James Peavy at (908) , ext