A.M. Best Rating Process for RRGs Writing Medical Professional Liability. September 23, 2010

Transcription

1 A.M. Best Rating Process for RRGs Writing Medical Professional Liability September 23, 2010

2 Tina Bukow-Truman Senior Business Development Manager Jim Fowler Business Development Manager Henry Witmer Assistant Vice President Ratings Division 2

3 Presentation Outline Overview 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 3

4 A.M. Best Company Overview Established: 1899 Leading worldwide: Insurance-focused rating agency Issuer of captive ratings Timeline: 1906: Began rating property insurers 1970s and 80s: Rated first captives 2001: Began rating new company formations (start-ups) 2002: Published captive rating methodology, with subsequent revisions and updates 4

5 Risk Retention Group Stats Rating Distribution - RRGs A++ A+ A A- B++ B+ MPLI RRGs All RRGs 5

6 Users and uses of a captive rating Independent Third Party Oversight Greater Transparency Financial Strength and Credibility Regulators Reinsurers (terms, conditions, price negotiating and fronting) Group Captives (attract and/or retain members) Benchmarking Standards Increase Control of an Insurance Program Help with ongoing Monitoring 6

7 Timing, Cost and Agreements Timing 8-12 week process Rating Fees (Initial and Annual) Size Complexity Billing Initial fees paid with RSA and are prorated Annual fees billed July 1 Rating Services Agreement 7

8 Data Requirements & Expectations Audited financial statements Actuarial report 3 to 5-year projections and business plan PML and/or terrorism study Reinsurance and vendor contracts Face-to-face meeting encouraged Management biographies Affiliate financial information 8

9 Rating Outcomes Initial Rating Accept and made public Appeal Decline and no public dissemination Subsequent Rating Reviews and Updates Public Appeal Withdraw from process 9

10 Interactive Rating Analysis Process

11 Medical Professional Liability Ratings for RRGs David Blades Robert Brokaw Robert Raber Greg Williams Henry Witmer 11

12 A.M. Best Ratings An 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 12

13 Typical Meeting Agenda Organization structure Corporate governance Capital structure (holding company & operating company) Underwriting Marketing and business production Claims and loss reserves 13

14 Typical Meeting Agenda Reinsurance/pooling Investments Financial data Catastrophe management framework Enterprise risk management Legislative / regulatory / judicial 14

15 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 15

16 Key Rating Factors Balance Sheet Strength 16

17 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 risk Asset risk Reported Surplus + Adjustments to Equity = Adjusted Surplus Adjusted Surplus / Net Required Capital = BCAR Leverage Analyses 17

18 Minimum Capital Requirements Rating BCAR Score Median A A A A B B Exceptions Based on Overall Analysis 18

19 Key Rating Factors Operating Performance Balance Sheet Strength 19

20 Operating Performance Underwriting and premium adequacy Claims and reserve adequacy Expenses Investment income Ratio analyses 20

21 Key Rating Factors Business Profile Operating Performance Balance Sheet Strength 21

22 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 22

23 Key Rating Factors Management Enterprise Risk Management Sponsor/Owner Financial Analysis Business Profile Operating Performance Balance Sheet Strength 23

24 Sponsor and Risk Management RRG Rating Issues Value and volatility of association endorsements Enterprise risk management Correlation of risk issues Financial flexibility Disaster recovery planning Quality and continuity of management and key personnel Succession planning Cycle management 24

25 Contact Tina Bukow Truman Business Development (908) ext 5825 Jim Fowler Manager, Business Development (908) ext