Transcript Document

Rating insurers in challenging
times
Victor Nikolskiy
Associate Director
2 July 2015
Permission to reprint or distribute any content from this presentation
requires the prior written approval of Standard & Poor’s. Copyright © 2013
by Standard & Poor’s Financial Services LLC. All rights reserved.
Part Of A Strong Group
Standard & Poor’s Global Reach
• In business for 150+ years
• Provides global reach and local
knowledge with an office
network spanning
23 countries
• 1,400+ research analysts
• More than 1.1 million
ratings outstanding
• 400+ analysts and analytical
supervisors (excluding Criteria and
Quality)
• Offices include:
London, Frankfurt,
Paris, Madrid, Milan, Stockholm,
Moscow, Dubai, Johannesburg,
Tel Aviv
3
Standard & Poor’s Ratings Leadership
S&P: More Than 1.1 Million Ratings Outstanding Globally
Credit Ratings Outstanding Globally1
Global Analytical Capability by NRSROs3
Credit
Analysts
Credit Analyst
Supervisors
Total
Standard & Poor’s Ratings Services
1,436
245
1,681
Moody’s Investors Service, Inc.
1,123
149
1,272
783
309
1,092
A.M. Best Company, Inc.
84
42
126
DBRS Ltd.
93
33
126
Japan Credit Rating Agency, Ltd.
27
32
59
Morningstar
26
10
36
Kroll Bond Ratings
22
6
28
2
3
5
NRSROs
Fitch, Inc.
Egan-Jones Rating Company
1. Nationally Recognized Statistical Rating Organization (NRSRO) filing 2013 (Exhibit 8). Note: Morningstar and Kroll — 2012 filing, 2013 N/A.
2. Others include A.M. Best Company, Inc; DBRS Ltd.; Japan Credit Rating Agency, Ltd.; Morningstar; Kroll Bond Ratings; Egan-Jones Rating Company.
3. NRSRO filing 2013 (Item 7). Note: Morningstar and Kroll — 2012 filing, 2013 N/A.
4
What A Credit Rating Is And What It Is Not
What It Is
And What It Is Not
Forward-looking opinions about relative credit
risk, i.e., the creditworthiness of an entity or
its securities that:
• Absolute measures of default probability
• Strive to be globally comparable
across sectors
• Incorporate views on relative likelihood
of default that:
• Refer to the timely payment of interest and principal and,
• Are applied to entities and securities
• Investment advice, a recommendation
to purchase, sell or hold securities, or a
comment as to market price or suitability for
an investor
• A measure of liquidity or market value
• A way of defining “good” or “bad”
companies, or a direct assessment
of corporate governance
• An audit of the company or its auditors
• A guarantee of credit quality or of future
credit risk
5
What Is An Insurer Financial Strength Rating?
An insurer financial strength rating is
a forward-looking opinion about the financial security
characteristics of an insurance organization with respect to its
ability to pay under its insurance policies and contracts in
accordance with their terms.
.
6
Global Economic Outlook
Global Economic Outlook
1. The US recovery is bank on track. North American credit conditions will remain mostly stable in 2015. The U.S. economic recovery is
strengthening, and we expect this trend to continue through 2015, boosted by growing momentum in the labor and housing markets.
2. Risks to Europe's growth outlook are tilted to the downside. The Eurozone economy is entering 2015 with weak tailwinds. Geopolitical factors
could hurt growth.
3. Asia Pacific: Slower growth momentum. After a strong start, the pace of activity in China and Japan has been slowing late in 2014. And growth
in the smaller, more trade-dependent economies never really got off the ground due to the delay in the U.S. recovery.
Top Global Risks
Real GDP
1. Ongoing geopolitical concerns
2. Eurozone stagnation and its potential dip back into recession
3. The Fed's tighter monetary policy in 2015-2016
4. China's financial system vulnerabilities
5. Grexit.
7
Regional Economic Outlook
Regional Economic Outlook
1. Limited or no GDP growth in 2015 with uncertain recovery in 2016
2. Concentrated economy, dependent on commodities, vulnerable to price shocks
3. Geopolitical risks remain very high
4. Local currencies fluctuations are massive
Hydrocarbon Sector as share of GDP
%
Real GDP
(%)
25
20
15
10
5
0
-5
-10
-15
Russia
Belarus
Kazakhstan
Ukraine
Azerbaijan
Turkey
2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f
8
70
60
50
40
30
20
10
0
Regional Sovereign Ratings Score Snapshot
Institutional
Sovereign
Economic
External Liquidity
and
Fiscal Flexibility Government Debt
Foreign-Currency
Structure and and International
Governance
and Performance Burden
Ratings
Growth
investment Position
Effectiveness
Azerbaijan
BBB-/Negative/A-3
Georgia
BB-/Stable/B
Kazakhstan
BBB/Negative/A-2
Belarus
B-/Stable/B
Russia
BB+/Negative/B
Turkey
BB+/Negative/B
Ukraine
CC/Negative/C
Monetary
Flexibility
Weakness
Neutral
Strength
Strength
Strength
Weakness
Neutral
Weakness
Weakness
Neutral
Strength
Weakness
Weakness
Neutral
Neutral
Strength
Strength
Neutral
Weakness
Neutral
Weakness
Neutral
Neutral
Weakness
Weakness
Weakness
Neutral
Neutral
Strength
Neutral
Neutral
Neutral
Weakness
Strength
Neutral
Neutral
Weakness
Weakness
Weakness
Weakness
Weakness
Weakness
Determining the Ratings – Key Steps
BUSINESS
RISK
PROFILE
Industry And
Country Risk
Competitive
Position
FINANCIAL
RISK
PROFILE
Capital And
Earnings
Risk Position
Financial
Flexibility
A
n
c
h
o
r
MODIFIERS
Enterprise Risk
Management
Management
And
Governance
Holistic
Analysis
I
n
d
i
c
a
t
i
v
e
S
A
C
P
/
G
C
P
CAPS
Liquidity
Sovereign
Risk
SACP: Stand Alone Credit Profile
GCP: Group Credit Profile
S
A
C
P
/
G
C
P
SUPPORT
Group
I
F
C
S
R
R
/
Government
ICR: Issuer Credit Rating
FSR: Financial Strength Rating
Determining the Ratings – Key Steps
Anchor
Financial risk profile
Business risk
profile
Extremely Very
strong
strong
Strong
Moderately Upper
Lower Less than
Weak
strong
adequate adequate adequate
Very
weak
Extremely
weak
Excellent
aa+
aa
aa-
a+
a
a-
bbb+
bbb-
N/A
N/A
Very Strong
aa
aa-
aa- or a+
a+ or a
a
a-
bbb
bb+
bb
N/A
Strong
a+
a+ or a
a or a-
a-
a-
bbb+
bbb
bb+
bb-
b+
a or a-
a-
a-
bbb+
bbb+
bbb
bbb-
bb
bb-
b
Fair
bbb+
bbb+
bbb+ or
bbb
bbb
bbb
bbb-
bb+
bb
b+
b
Vulnerable
bbb-
bbb-
bbb-
bb+
bb+
bb+
bb
bb-
b
b
Highly vulnerable
bb-
bb-
bb-
bb-
bb-
bb-
b+
b
b
b- or lower
Satisfactory
N/A--Not applicable.
Insurers’ ratings distribution in the region
Data as of 1 July 2015, Standard and Poor’s
Copyright © 2013 by Standard & Poor’s Financial Services LLC. All rights reserved.
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 Standard & Poor’s
Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their
directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties
are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or
maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES,
INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS,
SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE
OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or
consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in
connection with any use of the Content even if advised of the possibility of such damages.
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. S&P’s
opinions, analyses and rating acknowledgment 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. S&P assumes no obligation to update the Content following publication in any form or format. 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.
S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not
perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves
the right to assign, withdraw or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment,
withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain
business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain
non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its
opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and
www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our
ratings fees is available at www.standardandpoors.com/usratingsfees.
STANDARD & POOR’S, S&P, GLOBAL CREDIT PORTAL and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.