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2016 Insurance Market Briefing – MENA
Shangri La Hotel, Dubai, United Arab Emirates
5 October 2016
2016 Insurance Market Briefing - MENA
5 October 2016 2016 Insurance Market Briefing - MENA 2
Roger Sellek Chief Executive Officer
A.M. Best EMEA & Asia-Pacific
Welcome
Disclaimer
2016 Insurance Market Briefing - MENA 5 October 2016 3
© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB’s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, 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. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, market value risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.
Disclaimer
2016 Insurance Market Briefing - MENA 5 October 2016 4
US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved in the sales or marketing of a product or service of the CRA also participates in determining or monitoring the credit rating, or developing or approving procedures or methodologies used for determining the credit rating.
No part of this presentation amounts to sales / marketing activity and A.M. Best’s Rating Division employees are prohibited from participating in commercial discussions.
Any queries of a commercial nature should be directed to A.M. Best’s Market Development function.
Agenda
5 October 2016 2016 Insurance Market Briefing - MENA 5
14:10 Global Reinsurance Update Nick Charteris-Black, MD, Market Development - EMEA
14:45 Regional Reinsurance Update Mahesh Mistry, Director, Analytics
15:45 Networking coffee
16:15 Impact of Regulation & Oil Prices on the Insurance Industry Vasilis Katsipis, GM, Market Development - MENA & SCA
17:00 The Updated Best’s Credit Rating Methodology (BCRM) & New Best’s Capital Adequacy Ratio (BCAR) Model
Greg Carter, MD, Analytics - EMEA
18:00 Cocktail Reception
Global Reinsurance Market Trends
Nick Charteris-Black Managing Director, Market Development - EMEA
2016 Insurance Market Briefing – MENA
Discussion Outline
5 October 2016 2016 Insurance Market Briefing - MENA 7
Commentary on the Global Economy
Global Reinsurance Results and Trends
Alternative Capital
Where does the Market go from Here?
Reinsurance Rating Outlook
The Talk of Monte Carlo…
5 October 2016 2016 Insurance Market Briefing - MENA 9
Commentary on the
Global Economy
The Global Backdrop
5 October 2016 2016 Insurance Market Briefing - MENA 10
Negative interest rates
The United States, the world’s largest economy, has debt/GDP over 100%
The United Kingdom voted to leave the European Union
Terrorism seems to be rampant around the world
Housing bubbles in many parts of the world
Stock Markets are hovering near all-time highs
This is far from normal
5 October 2016 2016 Insurance Market Briefing - MENA 11
Global Reinsurance Results and Trends
Global Reinsurance
5 October 2016 2016 Insurance Market Briefing - MENA 12
77.3%
60.2% 56.5% 56.2% 56.2%
62.2%
61.3%
31.5% 31.6%
32.3% 33.5% 34.2% 33.9% 32.6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0%
20%
40%
60%
80%
100%
120%
2011 2012 2013 2014 2015 2016 Q2 5yr Avg
Expense Ratio
Loss Ratio
Loss ReserveDevelopment
Global Market Trends
Source: A.M. Best data & research
Global Reinsurance
5 October 2016 2016 Insurance Market Briefing - MENA 13
Source: A.M. Best data & research
107%
91% 91% 92% 92% 97%
0%
20%
40%
60%
80%
100%
120%
2011 2012 2013 2014 2015 2016Q2
Loss Ratio Expense Ratio
112% 93%
87% 87% 89% 94%
2011 2012 2013 2014 2015 2016Q2
108%
91% 87% 88% 90% 98%
2011 2012 2013 2014 2015 2016Q2
European “Big Four” U.S. & Bermuda Lloyd’s
Combined Ratios by Reinsurance Sector
Global Reinsurance
5 October 2016 2016 Insurance Market Briefing - MENA 14
1.9%
12.4% 13.0%
11.6%
9.5% 9.0%
0%
2%
4%
6%
8%
10%
12%
14%
2011 2012 2013 2014 2015 2016 Q2(annualised)
Source: A.M. Best data & research
Global Market Trends Return on Equity and Five-Year Average
Global Reinsurance
5 October 2016 2016 Insurance Market Briefing - MENA 15
-3%
15% 16%
15%
9%
12%
2011 2012 2013 2014 2015 2016Q2
6.6%
13.0% 13.1%
11.0%
11.5%
9.9%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2011 2012 2013 2014 2015 2016Q2
-0.9%
10.6%
11.4%
10.9%
7.5% 6.9%
2011 2012 2013 2014 2015 2016Q2
Note: Red line indicates five-year average. Source: A.M. Best data & research
European “Big Four” U.S. & Bermuda Lloyd’s
Return on Equity by Reinsurance Sector
5 October 2016 2016 Insurance Market Briefing - MENA 16
Alternative Capital
Alternative Capital
5 October 2016 2016 Insurance Market Briefing - MENA 17
Market is still largely
influenced by global leaders
M&A will continue
Alternative capacity is
driving change
Alternative capital is driving a great deal of structural change in the market
However, the market continues to be heavily influenced by the global reinsurance leaders
Top 50 Global Reinsurers
5 October 2016 2016 Insurance Market Briefing - MENA 18
The Top 10 global reinsurance companies continue to strongly influence the landscape
Reinsurance
Premiums Written
2016 Life & Non-Life (USD m)
Ranking Company Name Gross Net
1 Munich Reinsurance Co. 36,976 35,279
2 Swiss Reinsurance Co. Ltd. 32,249 30,442
3 Hannover Rueck SE 18,651 15,945
4 SCOR S.E. 14,665 13,228
5 Lloyd’s 12,740 10,237
6 Berkshire Hathaway Inc. 12,236 12,236
7 Reinsurance Group of America Inc. 9,371 N/A
8 China Reinsurance (Group) Corp. 8,283 7,546
9 Everest Re Group Ltd. 5,876 5,378
10 PartnerRe Ltd. 5,548 5,230
Source: A.M. Best data and research
Rank 1-10 72%
Rank 11-20 13%
Rank 21-30 7%
Rank 31-40 5%
Rank 41-50 3%
Life and Non-Life GPW Distribution by Ranking
Dedicated Reinsurance Capacity
5 October 2016 2016 Insurance Market Briefing - MENA 19
292 320 340 332 340
19
48 60 68 71
0
50
100
150
200
250
300
350
400
450
2012 2013 2014 2015 6M 2016E
ConvergenceCapacity
TraditionalCapacity
Total Dedicated Reinsurance Capacity (USD billions)
Note: * Estimate by Guy Carpenter and A.M. Best Source: A.M. Best, Guy Carpenter
Alternative Capital
5 October 2016 2016 Insurance Market Briefing - MENA 20
Capacity by Market Segment
Total approx.
USD 71bn
Catastrophe Bonds approx.
USD 23bn
Collateralized Reinsurance
approx. USD 40bn
Sidecars approx.
USD 5bn
Industry Loss Warranties
approx. USD 3bn
Alternative Capital – Top 10
5 October 2016 2016 Insurance Market Briefing - MENA 21
Nephila 10.0
Credit Suisse Asset Management 7.0
LGT Insurance-Linked Partners 5.8
Fermat Capital Management 4.8
Stone Ridge Capital Management 4.8
Securis Investment Partners 3.7
Catco 3.7
Leadenhall Capital Management 2.9
Elementum Advisors 2.9
Aeolus 2.5
Vast majority of alternative capital is influenced by the Top 10 players (USD billions)
Catastrophe Bond Issuance
5 October 2016 2016 Insurance Market Briefing - MENA 22
0
50
100
150
200
250
300
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Size
of A
vera
ge D
eal (
USD
mill
ions
)
Tota
l Cat
astr
ophe
Bon
ds (U
SD m
illio
ns)
Property and Casualty Industry – Year to Date 2016
5 October 2016 2016 Insurance Market Briefing - MENA 23
Where does the Market go from here?
Capacity Utilisation
5 October 2016 2016 Insurance Market Briefing - MENA 24
Capacity Utilisation Based on Aggregate Risk-Adjusted Capitalisation of Rated Balance Sheets
81% 76% 73% 72%
0
25
50
75
100
2012 2013 2014 2015
%
The Case for Mergers and Acquisitions
5 October 2016 2016 Insurance Market Briefing - MENA 25
Broader product capability
Broader geographic reach
Greater influence
Greater attractiveness to
alternative capital
Opportunity for growth
Alternatively Mergers and Acquisitions are
the result of strategic opportunities
Price to Book Value
5 October 2016 2016 Insurance Market Briefing - MENA 26
40
60
80
100
120
140
160
180
200
220
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Pric
e-to
-Boo
k Va
lue
AVERAGE
Low Reached March 2009 (0.75x BV)
1.0x P/BV
Peak reached February 2002 (1.83x BV) Current P/BV: 1.03x Average 1994-Present: 1.16x
Note: Excluding accumulated other comprehensive income. Sources: A.M. Best data and research, Bloomberg, company reports
5 October 2016 2016 Insurance Market Briefing - MENA 27
Reinsurance Rating Outlook
Global Reinsurance
5 October 2016 2016 Insurance Market Briefing - MENA 28
Negative Outlook
Increased client
retentions
Excess capacity
Capital convergence
Benign catastrophe
losses
Questionable underwriting
discipline
Declining reserve
development
Low yields
Europe Non-Life – 20 Largest Group Cedants
5 October 2016 2016 Insurance Market Briefing - MENA 29
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Prem
ium
s Ced
ed (
EUR
Mill
ions
)
2014
2015
Source: A.M. Best data & research
Top 10 Global Reinsurance Groups
5 October 2016 2016 Insurance Market Briefing - MENA 30
Financial Strength Rating (FSR)
Issuer Credit Rating (ICR) Outlook
Munich Reinsurance Co. A+ aa- Stable
Swiss Reinsurance Co. Ltd. A+ aa- Stable
Hannover Rueck SE A+ aa- Stable
SCOR S.E. A a+ Positive
Lloyd’s A a+ Stable
Berkshire Hathaway Inc. A++ aaa Stable
Reinsurance Group of America Inc. A+ aa- Stable
China Reinsurance (Group) Corp. A a Stable
Everest Re Group Ltd. A+ aa- Stable
PartnerRe Ltd. A a+ Stable
Notes: A.M. Best ratings as of 2 September, 2016 The ratings for Berkshire Hathaway Inc are taken from their subsidiary, NICO. The ratings for PartnerRe Ltd. are for Partner Reinsurance Company Ltd. The ratings for Reinsurance Group of America Inc. are for RGA Reinsurance Company (St. Louis, MO), RGA Americas Reinsurance Company, Ltd (Bermuda) and its subsidiaries.
Questions about the Future
5 October 2016 2016 Insurance Market Briefing - MENA 31
Who will be the market leaders in 10 years?
Which companies will weather the storm better?
How will alternative capital continue to fit in?
Will ultra-low interest rates pressure financial strength?
Can the market be disrupted by players outside the industry?
5 October 2016 32
Q&A
2016 Insurance Market Briefing - MENA
Regional Reinsurance Update
Mahesh Mistry Director, Analytics
2016 Insurance Market Briefing – MENA
MENA Reinsurance Markets
5 October 2016 2016 Insurance Market Briefing - MENA 34 34
Market Overview
Key Characteristics
Peer Comparison
Retakaful
Effect on Primary Insurers
Final Remarks
Key Market Issues
5 October 2016 2016 Insurance Market Briefing - MENA 35
• Depressed oil prices
• Regional instability
• Currency depreciations
• Declining sovereign ratings
• Pressure on public finances
• Regulatory developments
• Over capacity / pressure on rates
Challenging operating environment
Market Overview
5 October 2016 2016 Insurance Market Briefing - MENA 36
-15%-10%
-5%0%5%
10%15%20%25%30%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Development of MENA Insurance Markets compared to GDP (movements based on USD conversion)
Change in GDP (Year on Year)
Change in Premium (Year on Year)
-
10
20
30
40
50
60
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
MENA Premium Volumes (USD billions)
Source: A.M. Best data & research and Swiss Re sigma “World Insurance” series
Premium Volume
5 October 2016 2016 Insurance Market Briefing - MENA 37
Approximately USD 55 billion of premium revenue Mainly generated by the non-life market
-
2
4
6
8
10
12
Turkey UnitedArab
Emirates
SaudiArabia
Iran Morocco Qatar Egypt Lebanon Algeria Oman Kuwait Tunisia Jordan Bahrain
USD
Bill
ions
MENA Insurance Market 2015
Non-Life Life
Source: A.M. Best data & research and Swiss Re sigma “World Insurance” series
Why the Middle East?
5 October 2016 2016 Insurance Market Briefing - MENA 38
• High growth rates for insurance markets
• Low insurance penetration
• Profitable markets
• Greater diversification
• Benign to catastrophe events
• Excess capacity
Attractive market proposition
Proximity to clients is becoming extremely important – Dubai International Financial Centre is becoming
a major insurance hub
Balancing business profile
The Market Place
5 October 2016 2016 Insurance Market Briefing - MENA 39
Source: A.M. Best research
Established Reinsurer Domicile
1929 Milli Re Turkey 1957 Egypt Re Egypt 1960 SCR Morocco Morocco 1971 Bimeh Markazi Iran 1972 Kuwait Re Kuwait 1972 Arab Re Lebanon 1973 CCR Algeria Algeria 1974 Arab Union Re Syria 1980 ARIG Bahrain 1981 Tunis Re Tunisia 1989 Trust Re Bahrain 2003 Amin Re Iran 2005 Takaful Re UAE 2006 Hannover Retakaful Bahrain 2008 Saudi Re Saudi 2008 Emirates Re UAE 2008 Gulf Re UAE 2008 ACR Ratakaful Bahrain 2009 Qatar Re Qatar 2009 Oman Re Oman
2010 Iranian Re Iran
• Pre-2000 – Government owned – Participation from local insurers – Compulsory cessions
• Post-2000 – Influx of new entrants pre-financial crisis – Mixture local/foreign capital – Post-financial crisis less activity
Most international reinsurers have some form of presence in the Middle East. Primary insurers are increasingly writing inward fac business.
Establishment of Regional Reinsurers
Premium Retention
5 October 2016 2016 Insurance Market Briefing - MENA 40
Lowest premium retention – increasing due to introduction of mandatory covers
50%
55%
60%
65%
70%
75%
80%
85%
90%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Estimated Non-life Premium Retention
Europe
MENA
Southeast Asia
Source: A.M. Best data & research
South America
Market Profile
5 October 2016 2016 Insurance Market Briefing - MENA 41
Motor 30%
Medical 42%
Other 28%
Gross Written Premium
Motor 36%
Medical 51%
Other 14%
Net Written Premium
Source: SAMA, JOIF, IA, EFSA, CBB, A.M. Best research Selected countries: Saudi Arabia, Jordan, UAE, Egypt, Bahrain
Retention is high on retail lines, with commercial lines ceded to reinsurers
Reinsurance Utilisation
Business Line Net Retention
Motor > 90%
Health 60% to 80%
A&L 40% to 60%
Marine 20% to 35%
Property < 15%
Engineering < 15%
Aviation < 5%
Energy < 2%
Source: A.M. Best research. Ceded premiums include inter-group contracts.
How much business is retained?
5 October 2016 2016 Insurance Market Briefing - MENA 42
Gross Written Premium USD 3.5 bn Net Written Premium USD 2 bn Approximately 50% of business non-MENA Gross Written Premium growth 17% (mainly Qatar Re and Saudi Re)
-
200
400
600
800
1,000
1,200
1,400Gross Written Premium (USD millions)
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Total
2014
2015
68%
32%
2014
Retained Ceded
57% 43%
2015
The Marketplace
5 October 2016 2016 Insurance Market Briefing - MENA 43
MENA MARKETS
High growth markets Softening rates
Low penetration
Diversification DIFC = centre for
reinsurance
Dependence on foreign expertise
Low exposure to catastrophes
Primary insurers writing inward fac
Participation from other markets, e.g. Asia, Africa
Greater interest from international players
Excess capacity
Compulsory cessions Reinsurance pools
Iran sanctions Low oil prices
Market pressures create greater competition
Currency depreciation
International and Regional Players
5 October 2016 2016 Insurance Market Briefing - MENA 44
• Liberalisation of markets has encouraged participation from foreign players
• International players lead market
• Improves global presence / diversification
• Technical expertise
• Ability to dictate pricing and adapt policy wording (event limits, SRCC)
• Greater capacities
• Stronger financial strength ratings
• Operate more on size and scale
International Players
International and Regional Players
5 October 2016 2016 Insurance Market Briefing - MENA 45
• Competition from foreign players (including Asian reinsurers)
• Act as market follower
• Narrower profiles – subject to greater volatility
• Higher proportion of bouquet treaties – less control over risk selection
• Benefit from compulsory cessions / status in market
• Some operate within the niche Takaful segment
• Rating sensitive business restricts opportunities
• Opportunities targeting smaller clients / niche segments
Regional Players
Exposure Management
5 October 2016 2016 Insurance Market Briefing - MENA 46
• Catastrophe Risk – Cyclones – Oman – Storms – UAE – Floods – Jeddah
• Availability of risk modelling • Managing accumulation risk • Concentration risk • Reclaimed land • Inward Retro • Risk selection
• Large Losses – The Address
Hotel – Quarayyah
Power Plant – Aqua Power – Almarai – Hajr – Emirates Steel
• Is the loss frequency increasing? – Risk
management – Culture – Regulation – Human error – Risk controls /
mitigation
Estimated gross loss between USD 200 – 300 million
Are all risks factored into the underwriting decision?
2015 Technical Performance
5 October 2016 2016 Insurance Market Briefing - MENA 47
Technical performance remains mixed Market champions benefitting from compulsory cession Overall improvement in technical performance Life diversification adds some stability
-50,000
-40,000
-30,000
-20,000
-10,000
-
10,000
20,000
30,000
40,000Market
Source: A.M. Best research
-50,000
-40,000
-30,000
-20,000
-10,000
-
10,000
20,000
30,000
40,000Technical Performance (USD millions)
2014 2015
Five-Year Average Technical Ratios
5 October 2016 2016 Insurance Market Briefing - MENA 48
0%
20%
40%
60%
80%
100%
120%
140%
Milli Re Trust Re Qatar Re SCRMorocco
ARIG CCRAlgeria
Kuwait Re Saudi Re Arab Re Emirate Re Tunis Re Gulf Re ACRRatakful
Five-Year Average Technical Ratios
Loss Ratio Expense ratio
Pressure on underwriting performance for most reinsurers
Source: A.M. Best research
Operating Performance
5 October 2016 2016 Insurance Market Briefing - MENA 49
Investment income drives earnings; Return on Equity remains low
6%
-3%
12%
-3%
1%
8%
12%
7%
-2%
9% 8%
9%
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000
ACRBahrain
Arab Re ARIG CCRAlgeria
EmiratesRe
Gulf Re Kuwait Re Milli Re Qatar Re Saudi Re SCRMorocco
Trust Re Tunis Re
Operating Performance 2015 (USD millions)
Technical Income Investment Income Return on Equity
Paid-Up Capital
5 October 2016 2016 Insurance Market Briefing - MENA 50
-
100,000
200,000
300,000
400,000
500,000
600,000
ACRBahrain
Al FajerRe
Arab Re ARIG CCRAlgeria
EmiratesRe
Gulf Re Kuwait Re Milli Re Qatar Re Saudi Re SCRMorocco
Trust Re Tunis Re
Change in Paid-Up Capital (USD millions)
2011 2015
Source: A.M. Best research
Capital Adequacy
5 October 2016 51 2016 Insurance Market Briefing - MENA
34%
9% 12%
-10%
19%
-6%
8%
-2%
(400)
(300)
(200)
(100)
0
100
200
300
400
500
600
2008 2009 2010 2011 2012 2013 2014 2015
MENA Reinsurers – Development of Capital 2008-2015 (USD millions)
Dividend Change in Paid-Up CapitalInvestment income Technical profit
Source: A.M. Best research
Comparison against global peers
5 October 2016 2016 Insurance Market Briefing - MENA 52
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
2011 2012 2013 2014 2015
Loss Ratio
MENA Global
70%
75%
80%
85%
90%
95%
100%
105%
110%
115%
120%
2011 2012 2013 2014 2015
Combined Ratio
MENA Global
MENA reinsurers continue to underperform
Source: A.M. Best research. 2015 excludes some MENA reinsurers due to fluctuations arising from inter-group reinsurance.
Comparison – Gross Written Premium
5 October 2016 2016 Insurance Market Briefing - MENA 53
Source: A.M. Best research. Other sources include: Singapore Re, Arab Re, Viet National Re, PVI Re, Emirates Re, CICA Re, Tunis Re, National Re (Philippines), Gulf Re, East Africa Re, Ghana Re, Tune Project Re, Asian Re
Market profile small compared to global peers (USD millions)
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
0%
20%
40%
60%
80%
100%
120%
140%
160%
Loss Ratio Expense Ratio Ave Loss Ratio Ave Combined Ratio
Middle East
North Africa
Sub-Saharan Africa
Southeast Asia
Comparison – Five-Year Average Technical Ratios
5 October 2016 2016 Insurance Market Briefing - MENA 54
Source: A.M. Best research
Comparison – Five-Year Average Return on Equity
5 October 2016 2016 Insurance Market Briefing - MENA 55
-10%
-5%
0%
5%
10%
15%
20%
ROE Average ROE
Source: A.M. Best research
Middle East
North Africa
Sub-Saharan Africa
Southeast Asia
Retakaful – an uphill struggle
Is success dependent on the enforceability to utilise retakaful capacity?
56 5 October 2016 2016 Insurance Market Briefing - MENA
RETAKAFUL
Weak Performance
Available Capacity
Credit Rating
Quality of Takaful Business
Service
Value-added Proposition
Size / Scale Business Model
Impact on Direct Insurers
5 October 2016 2016 Insurance Market Briefing - MENA 57
-200
0
200
400
600
800
1000
Energy
0
200
400
600
800
1000
Motor
Earnings are generally driven by inward reinsurance commission
Note: Examples for illustration purposes. Actual data has not been used
Final Remarks
5 October 2016 58 2016 Insurance Market Briefing - MENA
• Market remains highly competitive • Gradual movement towards greater market discipline
MENA Reinsurance Market
• Generally well-capitalised; however profiles constrained
• Profiles and strategies vary by reinsurer
• Market environment remains challenging
• Opportunities are available, but risk selection remains important
• Management key to long-term stability
• Most ratings remain stable; underlying track record of technical performance will generally dictate positive or negative rating trends
• Improved business profile is important for higher ratings
MENA Reinsurers
5 October 2016 59
Q&A
2016 Insurance Market Briefing - MENA
Oil price decline and regulatory changes in MENA – the makings of a perfect storm
Vasilis Katsipis General Manager, Market Development – MENA, SCA
2016 Insurance Market Briefing – MENA
Agenda
5 October 2016 2016 Insurance Market Briefing - MENA 61
1. Reduction in price of oil has focused the market on less profitable lines of business
2. Regulatory changes: short-term pain for long term gain(?)
3. Finally...
Agenda
5 October 2016 2016 Insurance Market Briefing - MENA 62
1. Reduction in price of oil has focused the market on less profitable lines of business
2. Regulatory changes: short-term pain for long term gain(?)
3. Finally...
Oman Bahrain Jordan
EgyptLebanonQatar
UAE
KSA
Morocco
0
2,000
4,000
6,000
8,000
10,000
12,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Premium growth of Middle Eastern and North African markets(USD millions)
Main insurance markets in the Middle East have continued their strong growth
5 October 2016 2016 Insurance Market Briefing - MENA 63
Source: Swiss Re Sigma reports
• UAE and Saudi Arabia are the largest insurance markets in MENA
• These together with Qatar (from 2013 onwards) have been the main growth markets in the region
• Introduction of compulsory covers and price increases have been critical to market growth
Motor and medical are the main growth lines
5 October 2016 2016 Insurance Market Briefing - MENA 64
• Motor and medical have grown much faster than the market average in most markets
• Growth of these lines has continued unabated even in years of declining oil prices
• This is particularly the case in KSA and to a lesser extent to the rest of the GCC
• Introduction of compulsory covers combined with rate increases seem to be the main drivers of growth
Source: Swiss Re Sigma, Central Bank of Bahrain (CBB), Egyptian Financial Services Authority (EFSA), Jordan Insurance Federation (JOIF), Saudi Arabian Monetary Agency (SAMA), UAE Insurance Authority, US Energy Information Administration (EIA) A.M. Best analysis
50
150
250
350
450
550
650
750
850
950
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Premium growth of motor and medical lines(index)
UAE KSA Rest GCC Levant NA Crude oil
Remaining lines are stagnating in most oil-producing countries
5 October 2016 2016 Insurance Market Briefing - MENA 65
Source: Swiss Re sigma “World Insurance” series, CBB, EFSA, JOIF), SAMA, UAE Insurance Authority, EIA, A.M. Best analysis
50
100
150
200
250
300
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Est
Premium growth of non-motor, non-medical business(index)
UAE KSA Rest GCC Levant NA Crude oil
• Growth of remaining non-life product lines has been slower
• Growth rate is reduced and often premiums have declined in years that there is oil price decline
• Countries of the Levant the only ones which have continued their growth in recent years
Medical business: unprofitable in most years
5 October 2016 2016 Insurance Market Briefing - MENA 66
• In KSA pre-2013, profitability needs to be viewed in the light of recent reserve strengthening. Probably only 2015 truly profitable which is a direct impact of regulatory actions
• Medical business unprofitable in most recent years in the UAE • Reserving levels of medical in the UAE have not been tested to the same level as those
in KSA
60%
80%
100%
2009 2010 2011 2012 2013 2014 2015
Claims Ratio - Medical
KSA UAE
80%
100%
120%
2009 2010 2011 2012 2013 2014 2015
Combined Ratio - Medical
KSA UAE
Source: SAMA, UAE Insurance Authority, A.M. Best analysis
60%
80%
100%
2009 2010 2011 2012 2013 2014 2015
Claims Ratio - Motor
KSA UAE
Motor business unprofitable in recent years in most markets
5 October 2016 2016 Insurance Market Briefing - MENA 67
• Different dynamics shape the profitability of the business in the two countries: - KSA: underinsurance and reserve strengthening - UAE: competitive pressures
• Pre-2012 profitability of motor business seemingly good mainly due to low expense ratios
• Reserving levels in the UAE yet to be tested
80%
100%
120%
2009 2010 2011 2012 2013 2014 2015
Combined Ratio - Motor
KSA UAE
Source: SAMA, UAE Insurance Authority, A.M. Best analysis
In some tariffed markets the review of tariffs has helped reduce losses
5 October 2016 2016 Insurance Market Briefing - MENA 68
• Tariff increases in Jordan and Egypt have helped reduce claims ratio of motor in both countries
• Indications that MTPL remains unprofitable in both markets highlighting the need for regular tariff reviews and increases
• Companies and market as a whole try to improve profitability by increasing proportion of comprehensive covers
MTPL
All motor
40%60%80%
100%120%140%160%180%200%220%240%260%
2011 2012 2013 2014 2015 (est)
EgyptMotor loss ratios
MTPL
All motor
60%
80%
100%
120%
2011 2012 2013 2014 2015
Jordan marketMotor loss ratios
Source: EFSA, JOIF, A.M. Best analysis
Comprehensive Comprehensive
KSA: cost reduction a key driver for improvement in technical profitability
5 October 2016 2016 Insurance Market Briefing - MENA 69
• Profitability improvement is due to internal actions rather than increased reinsurance cessions. Especially for medical business retention ratio has increased significantly in recent years
• Reduction in management expenses and acquisition expenses have saved nine and ten percentage points in the combined ratios of medical and motor respectively in the last six years
0%
20%
40%
60%
80%
100%
120%
2009 2010 2011 2012 2013 2014 2015
Medical busines KSA - combined ratio composition
Acquisition Ratio Management expense ratio Claims Ratio Retention ratio
0%
20%
40%
60%
80%
100%
120%
2009 2010 2011 2012 2013 2014 2015
Motor busines KSA - combined ratio composition
Acquisition Ratio Management expense ratio Claims Ratio Retention ratio
Source: SAMA, UAE Insurance Authority, A.M. Best analysis
Profitability of MENA markets reduced due to increased proportion of motor and medical
5 October 2016 2016 Insurance Market Briefing - MENA 70
• Technical profitability of MENA markets has converged
• Profitability of GCC markets is now similar to those of the Levant and North Africa
• Increased focus on motor and medical have pushed combined ratios higher
70%
75%
80%
85%
90%
95%
100%
105%
110%
115%
120%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Combined ratio
KSA UAE Rest GCC Levant NA
Agenda
5 October 2016 2016 Insurance Market Briefing - MENA 71
1. Reduction in price of oil has focused the market on less profitable lines of business
2. Regulatory changes: short-term pain for long term gain(?)
3. Finally...
KSA and Turkey: examples of regulatory driven reserve reviews
5 October 2016 72
• Reserve reviews result in a “step-up” of reserving patterns
• Reinsurance plays little role as the majority of business is ceded on a non-proportional basis
0%
20%
40%
60%
80%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Turkey reserving
Net reserves / NWP Gross reserves / GWP Reserve Cession Ratio
0%
20%
40%
60%
80%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
KSA reserving
Net reserves / NWP Gross reserves / GWP Reserve Cession Ratio
• Reserve reviews act as one-offs
• Reinsurance helps reduce impact on companies financials as there are significant portions of business reinsured on a proportional basis
2016 Insurance Market Briefing - MENA
UAE likely to have similar review under new regulations(?)
5 October 2016 2016 Insurance Market Briefing - MENA 73
• Historically higher proportion of premiums has been reserved than in other markets
• Indications of a step-up since regulation was released
• Part of the impact is “hidden” as several companies restated prior year results (especially 2014) in order to show more profits in 2015
• As in KSA reinsurance plays a significant role to alleviate the impact on companies’ financials
0%
20%
40%
60%
80%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
UAE reserving
Net reserves / NWP Gross reserves / GWP Reserve Cession Ratio
No impact on asset allocation on the industry as a whole
5 October 2016 2016 Insurance Market Briefing - MENA 74
NEW LIMITS
< 30%
< 30% in UAE +
<20% abroad < 30%*
>5%
* For Government Bonds the limits are: - 100% for UAE Government issues and - 80% for other “A” rated sovereigns
< 10%
29 31 31 37 40 45 43 42 36 33 29
56 45 48 33 2823 20 20 27 27 28
1 3 3 4 5 6
815 16
23 23 22 23 22 21 20 21
3 5 2 3 5 3 3 3 3 3 3
2 3 12 3
4 6 910 11 11
0
25
50
75
100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Asset allocation all UAE companies(percentage points)
Cash Bonds Shares UL assets Loans Real Estate Affiliates Other
But significant impact on most companies …
915 16
2535
29
9 8
22
3
20 18
40
24 20
4335
16
2938
11
52
75
24
6558
67
85
8
1 10
16
22
0
43
36 13
13
27
22
19
18
15 5
1
105
12
23
2610
4046
47 85
64
58
57 46
43
31
7
18
1329
1
12
2
27
820
7
10
13
5
6
11
44
70
4
80 8072
52
37
37 5133
31
12 168
31
15
2516 19
14 7
71
29
9 717
2 913
3
5
39 6
16
41
19 19
0
25
50
75
100
COMPANIES
Company specific asset allocation as at 31/12/15(percentage points)
Other
Affiliates
Real Estate
Loans
UL assets
Shares
Bonds
Cash
5 October 2016 2016 Insurance Market Briefing - MENA 75
Real Estate 9
Equities 10 Bo
nds
2 Other 3
Number of companies with excessive exposure to:
Two-thirds of companies have asset allocations which contravene new regulations
95
75
35
100
3 4
28
11 15
100
2820
813
85
2
47
3 3
0
2 2
11
43
7
2
0
34
25
10
34
0
19
1
3
911
2
13
21
42
1
5
25
65
0
97 96
72
89 85
7280
92100
87
99
15
98
53
97 97 100 100 100 100 100 100 100 100
COMPANIES
Admissible / inadmissible assets backing shareholder's equity (percentage points)
Admissible capital Inadmissible capital x MCR covered
… with many companies unable to meet new capital requirements
5 October 2016 2016 Insurance Market Briefing - MENA 76
Based on the analysis of our sample:
14% of shareholder equity (equal to USD 540m) is invested in inadmissible assets
45% of companies have MCR coverage of up to x2. They could face problems meeting SCR
Could UAE follow in the footsteps of KSA?
5 October 2016 2016 Insurance Market Briefing - MENA 77
• Small and medium companies have suffered the most in KSA
• Majority had to raise capital
• Some may lose their license
• Could this happen in the UAE?
MCR
0
50
100
150
200
250
300
350
2014 2015 H1 2016
Saudi market - insurers with Shareholders' Equity below MCR in 2014
6 companies
raised equity
1 company retained earnings
3 companies uncertain
future
Source: SAMA, A.M. Best analysis
Agenda
5 October 2016 2016 Insurance Market Briefing - MENA 78
1. Reduction in price of oil has focused the market on less profitable lines of business
2. Regulatory changes: short-term pain for long term gain(?)
3. Finally...
What about excessive reinsurance?
5 October 2016 2016 Insurance Market Briefing - MENA 79
• KSA, Morocco and the markets of the Levant have normal retention levels
• In all other markets, reinsurance cessions are excessive
• Some governments may be concerned about outward flows of money from their countries
• What about ERM and the use of reinsurance as part of it?
40%
50%
60%
70%
80%
90%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Retention Ratio
KSA UAE Rest GCC Levant NA
Is it time for regulators to insist on write-off of long overdue balances?
5 October 2016 2016 Insurance Market Briefing - MENA 80
• In most MENA markets, balances remain outstanding for more than 120 days
• KSA is the only market where the collection of money due to insurers has improved
• SAMA’s rules on admissible assets must have influenced the improvement
60
70
80
90
100
110
120
130
140
150
160
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Days balances remain outstanding
KSA UAE Rest GCC Levant NA
In summary
5 October 2016 2016 Insurance Market Briefing - MENA 81
• Most markets are at a critical juncture with the majority of their premiums arising out of the less profitable lines of business (motor and medical)
• Focusing on expense reduction (as Saudi companies did in the past) will certainly help; but it remains unclear if it will be enough
• Regulators around the region are trying to strengthen supervision and policyholder protection
This will result in short-term strain for most companies – it is up to them to turn it into long-term gain
5 October 2016 82
Q&A
2016 Insurance Market Briefing - MENA
Update A.M. Best's Credit Rating Methodology and
New Best’s Capital Adequacy Ratio
2016 Insurance Market Briefing – MENA
Greg Carter Managing Director, Analytics
Rating Methodology 2017 • Released for initial comment period on 10 March, 2016
– Understanding BCAR for U.S. Property/Casualty Insurers – Best’s Credit Rating Methodology
• Comment period ended 30 June, 2016 • Next criteria releases in 2016 will contain the following:
– Revised Understanding BCAR for U.S. Property/Casualty Insurers draft
– Revised Best’s Credit Rating Methodology – Initial draft of Understanding BCAR for U.S. and Canadian
Life/Health Insurers – Initial draft of Understanding Universal BCAR
84 5 October 2016 2016 Insurance Market Briefing - MENA
Rating Methodology 2017 • New criteria procedures/methodology are expected
to go live in 2017
• However, timing will depend on the quantity and depth of comments received
• Received a substantial amount of comments during the initial comment period
• Revisions to the BCAR and the BCRM are currently underway
85 5 October 2016 2016 Insurance Market Briefing - MENA
Recap: The Current Process
Business Profile Operating Performance
Balance Sheet Strength
Country Risk
Enterprise Risk Management
5 October 2016
Best’s Ratings
2016 Insurance Market Briefing - MENA 86
The Building Block Approach
• The building blocks themselves will remain the same
• Components of the building blocks are currently being reviewed
87
A.M. Best’s Rating Process
5 October 2016 2016 Insurance Market Briefing - MENA
The Building Block Approach Balance Sheet Strength • Rating unit balance sheet strength assessment
– BCAR – Internal capital models – Other qualitative and quantitative factors
• Holding company impact • Country risk impact
88 5 October 2016 2016 Insurance Market Briefing - MENA
2016 Insurance Market Briefing - MENA
The Building Block Approach Balance Sheet Strength
89 5 October 2016
Summary of Changes to BCAR • Various scores calculated at different confidence intervals –
instead of one: ▪ 95%, 99%, 99.5%, 99.6%, 99.6% plus cushion (now to be included)
99.8%, and 99.9% (to be dropped following public consultation)
▪ Level of public disclosure under discussion
• New Calculation of BCAR ▪ Formula change
▪ Available Capital – Net Required Capital Available Capital
▪ Score above 0 means “Available Capital” > “Net Required Capital”
90 5 October 2016 2016 Insurance Market Briefing - MENA
2016 Insurance Market Briefing - MENA
The Building Block Approach Balance Sheet Strength
Country Risk
Balance Sheet
Strength
Baseline
Rating Unit Balance Sheet
Strength Assessment
Consolidated BCAR Financial Leverage
Operating Leverage Coverage Financial
Flexibility/Liquidity Intangible Assets
Holding Company Impact
Assessment
91 5 October 2016
The Building Block Approach Balance Sheet Strength
2016 Insurance Market Briefing - MENA 92
Positive Neutral Negative Very NegativeStrongest Strongest Strongest Very Strong Adequate
Very Strong Strongest Very Strong Strong WeakStrong Very Strong Strong Adequate Very Weak
Adequate Strong Adequate Weak Very WeakWeak Adequate Weak Very Weak Very Weak
Very Weak Weak Very Weak Very Weak Very Weak
Holding Company
Lead
Rat
ing
Uni
t
5 October 2016
The Building Block Approach Balance Sheet Strength
2016 Insurance Market Briefing - MENA 93
CRT-1 CRT-2 CRT-3 CRT-4 CRT-5
Strongest a+/a a+/a a/a- a-/bbb+ bbb+/bbb
Very Strong a/a- a/a- a-/bbb+ bbb+/bbb bbb/bbb-
Strong a-/bbb+ a-/bbb+ bbb+/bbb/bbb- bbb/bbb-/bb+ bbb-/bb+/bb
Adequate bbb+/bbb/bbb- bbb+/bbb/bbb- bbb-/bb+/bb bb+/bb/bb- bb-/b+/b
Weak bb+/bb/bb- bb+/bb/bb- bb-/b+/b b+/b/b- b/b-/ccc+
Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below
Country Risk Tier
Com
bine
d B
alan
ce S
heet
Ass
essm
ent
(Rat
ing
Uni
t/ H
oldi
ng C
ompa
ny)
5 October 2016
94
The Building Block Approach Balance Sheet Strength
5 October 2016 2016 Insurance Market Briefing - MENA
The Building Block Approach Operating Performance • Underwriting performance • Investment performance • Total operating earnings • Prospective financial forecasts • Other considerations • Unique to line of business, region of operation,
structure
95 5 October 2016 2016 Insurance Market Briefing - MENA
Operating Performance Assessment
Adjustment (Notches) Key Operating Performance Characteristics
Very Strong +2 Historical operating performance is exceptionally strong and consistent. Trends are positive and prospective operating performance is expected to be exceptionally strong. Volatility of key metrics is low.
Strong +1 Historical operating performance is strong and consistent. Trends are neutral/slightly positive and prospective operating performance is expected to be strong. Volatility of key metrics is low to moderate.
Adequate 0 Historical operating performance and trends are neutral. Prospective operating performance is expected to be neutral. Volatility of key metrics is moderate.
Weak -1 Historical operating performance is poor. Trends are neutral/slightly negative and prospective operating performance is expected to be poor. Volatility of key metrics is high.
Very Weak -2/3 Historical operating performance is very poor. Trends are negative and prospective operating performance is expected to be very poor. Volatility of key metrics is high.
Depending on a company’s operating performance, the baseline can be adjusted up or down
– Using appropriate benchmark – Looking at level, trend and volatility
96
The Building Block Approach Operating Performance
5 October 2016 2016 Insurance Market Briefing - MENA
The Building Block Approach Business Profile
Review key areas including
97 5 October 2016 2016 Insurance Market Briefing - MENA
Business Profile Assessment
Adjustment (Notches) Key Characteristics of Business Profile
Very Favorable +2
The company's market leadership position is unquestionable, demonstrated, and defensible with high brand recognition. Distribution is seen as a competitive advantage; business lines are non-correlated and generally lower risk. Its management capabilities and data management are very strong.
Favorable +1
The company is a market leader with strong business trends and good control over distribution. It has diversified operations in key markets that have high to moderate barriers to entry with low competition. It has a strong management team that is able to meet projections and utilize data effectively.
Neutral 0 The company is not a market leader, but is viewed as competitive in chosen markets. It has some concentration and/or limited control of distribution. It has moderate product risk but limited severity and frequency of loss. Its use of technology is evolving and its business spread of risk is adequate.
Limited -1
The company has a lack of diversification in geographic and/or product lines; its control over distribution is limited and undifferentiated. It faces high/increasing competition with low barriers to entry and elevated product risk. Management is unable to utilize data effectively or consistently in business decisions.
Very Limited -2 The company faces high competition and low barriers to entry. It has high concentration in commodity or higher-risk products with very limited geographic diversity. It has weak data management. Country risk may factor into its elevated business profile risks.
The Building Block Approach Business Profile • Sub-assessments are qualitatively combined by analyst into a single business profile assessment • Ultimate “weights” of each sub-assessment will vary depending on which metrics will have biggest
impact on future financial strength
5 October 2016 2016 Insurance Market Briefing - MENA 98
The Building Block Approach Enterprise Risk Management • Analyst assessment of the overall risk management framework that is in place • Analyst assessment of the rating unit’s risk profile relative to its risk management
capabilities • Overall assessment of ERM
– Evidence of use test, process changes – Performance under stressed environments
99
ERM Assessment
Adjustment (Notches)
Key Characteristics of ERM
Very Strong +1 The insurer's ERM framework is sophisticated, time/stress tested and embedded across the enterprise. Risk management capabilities are excellent and are suitable for the risk profile of the company.
Adequate 0 The insurer's ERM framework is well developed and is adequate given the size and complexity of its operations. Risk management capabilities are good and are adequate for the risk profile of the company.
Weak -1/2 The insurer's ERM framework is emerging and management is still developing formal risk protocols. Risk management capabilities are insufficient given the risk profile of the company.
Very Weak -3/4 There is limited evidence of a formal ERM framework in place. Risk management capabilities contain severe deficiencies relative to the risk profile of the company.
5 October 2016 2016 Insurance Market Briefing - MENA
• Evaluation of key rating factors includes parameters which place limits on any one factor
• Recognises a truly uncommon strength/weakness that is not captured through the rating process
100
Comprehensive Adjustment
Adjustment (Notches) Key Characteristics
Positive +1 The company has uncommon strengths that exceed what has been captured throughout the rating process.
None 0 The company's strengths and weaknesses have been accurately captured throughout the rating process.
Negative -1 The company has uncommon weaknesses that exceed what has been captured throughout the rating process.
The Building Block Approach Comprehensive Adjustment
5 October 2016 2016 Insurance Market Briefing - MENA
Comments
101
Type of Company (Dominant Business Line) % of Comments Received
U.S. Property/Casualty 46.2%Reinsurance 17.9%International 12.8%Non-Insurance 10.3%Reinsurance Broker 7.7%Other 5.1%
5 October 2016 2016 Insurance Market Briefing - MENA
Official Comments
• Issued an update to the Call for Comment on 5 May • Update was designed to encourage additional market feedback on
use of models and understanding of BCRM
• Three specific questions were asked: – Do you fully understand the Building Block approach outlined in
the BCRM and is it fully transparent? – Are there any parameters outlined for Balance Sheet Strength, Operating
Performance, Business Profile, ERM, or Comprehensive Adjustment you disagree with?
– What are your views on using VaR metrics for risk modeling in general? Do your views concerning the value of these metrics change as one goes out further into the tail (e.g. VaR 99.8 and 99.9)?
102 5 October 2016 2016 Insurance Market Briefing - MENA
Official Comments
• Comments tended to focus on the BCAR • BCRM generally seen as facilitating transparency through the
building block approach • Goal remains consistency and transparency
– Currently considering areas where more visibility needed – Intend to add detail where questions have arisen
103 5 October 2016 2016 Insurance Market Briefing - MENA
Changes Under Consideration: VaR • Moving off of the tail
– Issues of consistency and availability of data globally – Removing 99.8 and 99.9 and including lower probability
tail events in ERM discussion • Adding 99.6
104
Confidence Level (%) BCAR Implied Balance Sheet Strength
99.6 > CUSHION + CUSHION at 99.6 Strongest
99.6 > CUSHION at 99.6 Very Strong
99.5 > 0 at 99.5 & ≤ 0 at 99.6 Strong
99 > 0 at 99 & ≤ 0 at 99.5 Adequate
95 > 0 at 95 & ≤ 0 at 99 Weak
95 ≤ 0 at 95 Very Weak
5 October 2016 2016 Insurance Market Briefing - MENA
Summary of Changes to BCAR • Various scores calculated at different confidence intervals –
instead of one: ▪ 95%, 99%, 99.5%, 99.6%, 99.6% plus cushion (now to be included)
99.8%, and 99.9% (to be dropped following public consultation)
▪ Level of public disclosure under discussion
• New Calculation of BCAR ▪ Formula change
▪ Available Capital – Net Required Capital Available Capital
▪ Score above 0 means “Available Capital” > “Net Required Capital”
105 5 October 2016 2016 Insurance Market Briefing - MENA
Changes Under Consideration: Stochastic Modeling within the BCAR
• Moving to stochastic-based factors as opposed to conducting stochastic modeling within the BCAR model itself – Will provide more transparency – Allow the running of “what if” scenarios
106 5 October 2016 2016 Insurance Market Briefing - MENA
Changes Under Consideration: Covariance Adjustment • Reviewing the assumption that catastrophe risk is correlated
to other risks – Moving the natural catastrophe (B8) under the square root
107 5 October 2016 2016 Insurance Market Briefing - MENA
Changes Under Consideration: Interest Rate Shocks • Reviewing the assumption that an interest rate shock would
occur at the same time as an equivalent tail event – Proposal is to hold constant the liquidity need (10%
minimum) for interest rate shocks across the VaR levels
108 5 October 2016 2016 Insurance Market Briefing - MENA
Changes Under Consideration: ERM • Making the ERM framework assessment more
prominent/transparent via a redesign of the Risk Impact Worksheet (RIW) – Part I: ERM Framework – Part II: Risks – Part III: Overall ERM Assessment
109 5 October 2016 2016 Insurance Market Briefing - MENA
5 October 2016 110
Q&A
2016 Insurance Market Briefing - MENA
5 October 2016 111 2016 Insurance Market Briefing - MENA
2016 Insurance Market Briefing – Europe and Methodology Review Seminar
Wednesday 16 November 2016:
2016 Insurance Market Briefing – Europe 08:30 – 13:00 GMT, followed by lunch
Methodology Review Seminar 14:15 – 16:15 GMT
ETC Venues St Paul's, London 200 Aldersgate, London, EC1A 4HD
EMEA Market Overview ● Natural Catastrophe Schemes in Europe ● Major Challenges Facing the Industry and the Potential Impact on Credit Quality ● Reinsurance Panel
Overview - Structural Changes to Best's Credit Rating Methodology ● Ongoing Restructuring and Revised Presentation ● The New Universal BCAR and its Application ● Sector Specific Revisions
There is no charge to attend this event, but registration is required as space is limited.
2016 Insurance Market Briefing – MENA
Shangri La Hotel, Dubai, United Arab Emirates
5 October 2016