Post on 29-Apr-2021
Criteria | Insurance | Request for Comment:
Insurers: Rating Methodology
Financial Services:
Emmanuel Dubois-Pelerin, Global Criteria Officer, Paris (33) 1-4420-6673;
emmanuel_dubois-pelerin@standardandpoors.com
Corporate & Government Ratings:
Colleen Woodell, Chief Credit Officer, New York (1) 212-438-2118;
colleen_woodell@standardandpoors.com
Primary Credit Analysts:
Rodney A Clark, FSA, New York (1) 212-438-7245; rodney_clark@standardandpoors.com
Rob Jones, London (44) 20-7176-7041; rob_jones@standardandpoors.com
Mark Button, London (44) 20-7176-7045; mark_button@standardandpoors.com
Secondary Contacts:
Matthew Carroll, CFA, New York (1) 212-438-3112; matthew_carroll@standardandpoors.com
John Iten, New York (1) 212-438-1757; john_iten@standardandpoors.com
Lotfi Elbarhdadi, Paris (33) 1-4420-6730; lotfi_elbarhdadi@standardandpoors.com
Connie Wong, Singapore (65) 6239-6353; connie_wong@standardandpoors.com
Angelica Bala, Mexico City (52) 55-5081-4405; angelica_bala@standardandpoors.com
Gregory Gaskel, New York (1) 212-438-2787; greg_gaskel@standardandpoors.com
Karin Clemens, Frankfurt (49) 69-33-999-193; karin_clemens@standardandpoors.com
Damien Magarelli, New York (1) 212-438-6975; damien_magarelli@standardandpoors.com
Kevin Ahern, New York (1) 212-438-7160; kevin_ahern@standardandpoors.com
Michelle Brennan, London (44) 20-7176-7205; michelle_brennan@standardandpoors.com
David Laxton, London (44) 20-7176-7079; david_laxton@standardandpoors.com
Table Of Contents
I. INTRODUCTION
II. SCOPE OF THE PROPOSED CRITERIA
III. PROPOSAL SUMMARY
IV. SPECIFIC QUESTIONS FOR WHICH WE ARE SEEKING A RESPONSE
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Table Of Contents (cont.)
V. RESPONSE DEADLINE
VI. IMPACT ON OUTSTANDING RATINGS
VII. METHODOLOGY
A. Calibrating The Ratings
B. Determining The Ratings
C. Assessing The Business Risk Profile
C1. Deriving The Business Risk Profile
C2. Insurance Industry And Country Risk Assessment (IICRA)
C3. Competitive Position
D. Assessing The Financial Risk Profile
D1. Deriving The Financial Risk Profile
D2. Capital And Earnings
D3. Risk Position
D4. Financial Flexibility
E. Modifiers And Caps To The Indicative SACP Or GCP
E1. ERM And Management Score
E2. Liquidity
E3. Fixed-Charge Cover Test
E4. Rating An Insurer Above The Sovereign Rating Or T&C Assessment
F. Support Framework
F1. Rating Insurance Subsidiaries Of Insurance Groups
F2. Assigning ICRs To Nonoperating Holding Companies
F3. Assigning Issue Ratings
VIII. GLOSSARY
IX. RELATED CRITERIA AND RESEARCH
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Insurers: Rating Methodology
I. INTRODUCTION
1. Standard & Poor's Ratings Services is requesting comments on changes it is proposing to its criteria for rating insurers.
Our intention is to enhance the transparency of our methodology on insurers globally. The proposed criteria introduce
a ratings framework comprising a business risk profile and a financial risk profile. They also put forward new rating
factors and subfactors to assess the impact of industry and country risks, prospective capital adequacy, and risk
position. The aim is to clearly and in considerable detail specify the factors and subfactors of the analysis, and to show
how they combine into rating outcomes.
2. The criteria propose quantitative and qualitative metrics for evaluating subfactors for these rating factors: industry and
country risk, competitive position, capital and earnings, risk position, liquidity, and financial flexibility. No changes are
proposed to the enterprise risk management factor or to Standard & Poor's risk-based capital adequacy model.
II. SCOPE OF THE PROPOSED CRITERIA
3. The proposed criteria apply to all global-scale foreign currency and local currency long-term issuer credit, financial
strength, and financial enhancement ratings on insurers in the business of life, health, and property/casualty (P/C;
known as non-life outside of the U.S.) insurance and reinsurance sectors. For most companies, the three types of
ratings are identical under the current and proposed criteria. The criteria exclude ratings on bond insurers, insurance
brokers, insurers that are starting up or are in run-off, and mortgage and title insurers. Public information ("pi") ratings
are out of the scope of this Request for Comment (RFC).
III. PROPOSAL SUMMARY
4. The proposed criteria for insurance ratings constitute specific methodologies and assumptions under Standard &
Poor's "Principles Of Credit Ratings," published on Feb. 16, 2011.
5. The methodology we propose consists of two key steps (see chart 1): assessing the stand-alone credit profile (SACP)
and then extraordinary government or group support. Once a rated insurer's group member status and the likelihood
of extraordinary support are evaluated, then the criteria assign the insurer's issuer credit rating (ICR) as a function of
the group credit profile (GCP) and, for government-related entities (GREs), the rating on the government. In some
cases, set out in ¶¶21 to 24, the proposed criteria allow for the assignment of an SACP or GCP that is one notch higher
or lower than the criteria for the SACP or GCP imply.
6. The assessments of the SACP and GCP rest on the same eight rating factors:
• Insurance industry and country risk assessment (IICRA),
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• Competitive position,
• Capital and earnings,
• Risk position,
• Financial flexibility,
• Management and corporate strategy,
• Enterprise risk management (ERM), and
• Liquidity.
7. An SACP, a GCP, and the ratings on an insurer are subject to our country risk assessments. In addition, foreign
currency ratings on domestic unsupported insurers are no higher than our transfer and convertibility (T&C)
assessments.
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IV. SPECIFIC QUESTIONS FOR WHICH WE ARE SEEKING A RESPONSE
8. Standard & Poor's is seeking market feedback on its proposed criteria and responses to the following questions:
• Do the criteria incorporate the key factors affecting an insurer's creditworthiness? Do you agree with the main
variables for assessing the different factors? If not, what is missing and what is redundant?
• Are we sufficiently clear and transparent about how we explain the proposed process for assigning ratings, and
standards for evaluating and weighting the proposed rating factors? If not, what areas would benefit from greater
clarity?
• Do you agree with the way the proposed insurance industry and country risk assessment (IICRA) score is reached
and would affect insurers' ratings? If not, what alternatives would you propose?
• Do you agree with the proposed way that liquidity, enterprise risk management, and management are scored and
how they would affect ratings?
V. RESPONSE DEADLINE
9. We encourage all market participants to submit written comments on the proposed criteria by Sept. 9, 2012. Please
send them to CriteriaComments@standardandpoors.com. After the deadline, we will review the comments and
publish the criteria.
VI. IMPACT ON OUTSTANDING RATINGS
10. We expect any change to our global distribution of insurer ratings to be modest. The review may lead to adjustments
to some insurance company ratings. We expect the significant majority of ratings to remain unchanged or move by no
more than one notch.
VII. METHODOLOGY
A. Calibrating The Ratings
11. We calibrate our insurance ratings criteria based on our analysis of the history of defaults, the impact of various
financial and economic crises on insurance company creditworthiness, the credit strength of the insurance sector
compared with that in other sectors, and on Standard & Poor's framework for the behavior of our credit ratings over
time through economic cycles. We outline our framework in three articles: "Understanding Standard & Poor's Rating
Definitions," published on June 3, 2009; "Credit Stability Criteria," May 3, 2010; and "The Time Dimension Of Standard
& Poor's Credit Ratings," Sept. 22, 2010.
12. Insurance companies are typically highly regulated, and in general the regulatory framework has been effective. To
protect policyholders, insurance companies are normally required to hold levels of capital in excess of required
"solvency margins" to offset potential losses.
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13. Consequently, although Standard & Poor's insurance ratings span the entire rating scale, there are a greater proportion
of ratings at the higher end than in most other sectors. Furthermore, the median rating of the universe of rated insurers
is higher than in all sectors except governments. Of insurer financial strength ratings, 93% are currently investment
grade (including public and confidential ratings). Of those, 52% are in the 'A' category, while 24% are in the 'AA'
category, compared with about 15% and 2%, respectively, for nonfinancial corporate issuers. Our rated universe is
heavily concentrated in developed countries and midsize to large insurers, and it is likely that many of the unrated
insurers would fall in lower rating categories.
14. The main sources that we have used to review the history of insurance company defaults are Standard & Poor's default
studies (see "2011 Annual Global Corporate Default Study And Rating Transitions," March 21, 2012), which covers the
performance of Standard & Poor's insurance ratings, both in terms of transition and default, over the period 1981 to
2011. We note that creditworthiness in this heavily regulated sector appears to be sustainable during periods of
economic stress. Default rates have increased during periods of stress, such as economic downturns, or following
major catastrophes, but have remained relatively low. We note that the rated average default rate over the study
period is 0.41%, which is the lowest of any sector in the study.
15. Our criteria are informed by several periods of heightened stress that resulted in an increased number of significant
insurance company failures. The periods of stress were more industry-specific than macroeconomic:
• 1984-1989: A number of predominantly casualty insurers, including Mission Insurance Co. and Transit Casualty
Insurance Co., became insolvent as loss reserves proved deficient following a period of inadequate pricing
industrywide (source: "Failed promises: Insurance company insolvencies: A report by the Subcommittee on
Oversight and Investigation of the Committee on Energy and Commerce," U.S. Congress, 1990;
• 1992-1994: Several significant life insurers, including Executive Life Insurance Co., Mutual Benefit Life Insurance
Co., and Confederation Life Insurance Co., failed due to a combination of illiquid asset concentrations and
run-on-the-bank scenarios;
• 2000: Japanese insurers, including Chiyoda Mutual Life Insurance Co. and Kyoei Life Insurance Co., voluntarily
entered rehabilitation, as guaranteed rates of interest on savings products were no longer sustainable given low
interest rates in Japan (source: "Why Some Japanese Insurers Are Failing," Towers Perrin, 2001); and
• 2002-2005: Several P/C insurers and reinsurers failed, including Mutual Risk Management Ltd., Trenwick Group
Ltd., Globale Rückversicherungs AG, and Converium Reinsurance (North America) Inc., predominantly due to
deficient reserves for casualty lines following a period of inadequate pricing industrywide, and weak risk
management.
16. The proposed criteria globally address the issues that caused these failures, including, among other areas (1) new
liquidity metrics, (2) capital metrics that focus more on asset-liability risks, (3) IICRA metrics that take into account
industrywide pricing adequacy, and (4) a larger role for ERM for companies with complex risks.
17. The global financial crisis did not trigger a wave of insurance life and P/C defaults. In fact, no significant insurer rated
by Standard & Poor's defaulted due to the financial crisis, other than in the bond insurance and mortgage insurance
sectors, both of which are outside the scope of the proposed criteria (see "Bond Insurance Rating Methodology And
Assumptions," Aug. 25, 2011, and "U.S. Mortgage Insurer Sector Outlook Remains Negative--And The Clock's
Ticking," March 1, 2012). However, American International Group Inc. would have failed without a rescue by the
Federal Reserve Bank of New York. Although the company's problems fell largely outside of its insurance businesses,
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we believe this criteria proposal, together with our revised bank and collateralized debt obligation criteria (see the
Related Criteria And Research section for bank criteria, and "Global CDOs Of Pooled Structured Finance Assets:
Methodology And Assumptions," Feb. 21, 2012), would have captured them.
B. Determining The Ratings
18. SACP and GCP are as defined in "Stand-Alone Credit Profiles: One Component Of A Rating," published Oct. 1, 2010,
and "Group Rating Methodology And Assumptions," published Nov. 9, 2011. The proposed criteria determine an
operating company insurer's rating in six steps (for the scoring, see table 2):
• The business risk profile is derived from the combination of the scores for the relevant IICRA and the insurer's
competitive position.
• The financial risk profile is derived from the combination of the insurer's scores for capital and earnings, risk
position, and financial flexibility.
• The anchor is derived from the combination of scores for the business and financial risk profiles according to table 1
unless near-term and present default risk leads to a rating conclusion of 'D', 'SD', or 'CC' based on our ratings
definitions.
• The indicative SACP or GCP is equivalent to the anchor, unless it is modified by the ERM and management score
and by peer comparisons according to ¶¶21 to 24.
• The SACP is equivalent to the indicative SACP and the GCP is equivalent to the GCP, unless the liquidity,
fixed-charge coverage, and sovereign risk tests imply a lower SACP.
• The ICR results from the combination of the SACP and of the support framework, which determines the extent of
uplift, if any, for government or group support.
Table 1
Anchor
Financial risk profile (from table 12)
Business risk profile
(from table 3)1 2 3 4 5 6 7 8 9 10
1 aa+ aa aa- a+ a a bbb+ bbb- bb b+
2 aa- aa- aa- a+ a a bbb bb+ bb b+
3 a+ a+ a a- a- a- bbb bb+ bb- b+
4 a a- a- bbb+ bbb+ bbb+ bbb- bb bb- b
5 bbb+ bbb+ bbb bbb bbb bbb- bb+ bb b+ b
6 bbb- bbb- bbb- bb+ bb+ bb+ bb bb- b b
7 bb- bb- bb- bb- bb- bb- b+ b b b- or lower
Note: An issuer credit rating of 'AAA' is possible for example if the ERM and management score is '1' (see tables 19 and 20) or if the peer-based
comparison leads to a one-notch adjustment (see ¶21).
19. A nonoperating holding company rating, under the proposed criteria, is assigned by notching down from the group's
GCP, typically by a maximum of three notches.
20. GCPs and SACPs are assessed based on the same eight proposed rating factors in ¶6, and the assignment of the GCP
follows the steps in ¶18. The scope of the GCP analysis is the entire group. By contrast, for a group member, the scope
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of the SACP would be the entity itself or, if it owns subsidiaries, the subgroup.
Table 2
Factor scoring
Factor Strongest score Weakest score
Business risk profile 1 7
IICRA 1 6
Competitive position 1 6
Financial risk profile 1 10
Capital and earnings 1 8
Risk position 1 4
Financial flexibility 1 4
ERM and management 1 5
Liquidity 1 5
IICRA--Insurance industry and country risk assessment. Throughout these proposed criteria, a score is "worsened" or "weakened" when the
number increases (e.g. from '2' to '3'), and "improved" or "strengthened" when the number decreases (e.g. from '4' to '3').
21. Under the proposed criteria, the assessment of an insurer's SACP and GCP is refined by up to one notch in either
direction to reflect elements not captured elsewhere in the proposed framework. Such an adjustment considers the
insurer's relative credit standing among peers, either through a holistic analysis of the eight rating factors (except
liquidity) or by identifying below- or above-average vulnerability to event-related risks (often referred to as tail risks) or
sustained, predictable operating and financial outperformance or underperformance.
22. Peers are insurers in the same sector as the insurer under consideration for global reinsurers, global marine protection
and indemnity (P&I) insurers, global trade credit insurers, and global multiline insurers.
23. For other insurers, peers are rated insurers operating in the same country and P/C or life sector in the sense of table
10 and box 2. If the peer group contains a small number of rated peers, it may be broadened to include rated or
unrated insurers in markets with the same IICRA score (or, if still insufficient, similar IICRA scores).
24. If the peer group is overly large, it may be delineated according to business line, such as in the U.S. where the P/C
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insurance sector can be delineated between personal and commercial lines.
C. Assessing The Business Risk Profile
C1. Deriving The Business Risk Profile
25. The business risk profile (BRP) measures the risk inherent in the insurer's operations and therefore the potential
sustainable return to be derived from those operations on a scale from '1' (excellent) to '7' (weak).
26. The BRP is based on the IICRA specific to the insurer and on the insurer's competitive position according to table 3.
27. Relatively low-risk product offerings or target markets with favorable competitive dynamics can strengthen the BRP
score by one category. We would apply this adjustment infrequently, and only in cases where a majority of the
insurer's liabilities exhibit a lower BRP than that of peers operating in the same sectors (e.g., health, life, or P/C) and
countries. Some examples of such profiles include the following:
• Focus on products with meaningful risk-sharing features, such as participating whole life insurance and some
with-profit products with minimal investment return guarantees, provided that the insurer has demonstrated the
willingness and ability to share adverse experience with policyholders in spite of the commercial implications.
• Avoidance of markets where high-risk "secondary guarantees" have become prevalent, such as no-lapse guarantees
on universal life insurance, or living benefit riders on variable annuity contracts;
• Focus on niche or underpenetrated markets with few competitors, effective barriers to entry, and sustainably strong
margins.
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C2. Insurance Industry And Country Risk Assessment (IICRA)
28. The proposed IICRA addresses the risks typically faced by insurers operating in specific industries and countries and is
generally determined at a country or regional level. For example, we expect to assign an IICRA to the Canadian P/C
sector, one to the Australian health sector, and one to the Japanese life sector. The IICRA anchors our analysis of an
insurer's BRP, as industry and country risks are closely linked with the analysis of competitive position. A specific
analysis is proposed for four global sectors (see ¶¶36 to 38).
29. Since the various subfactors all contribute significantly to an insurer's BRP, the IICRA score applicable to each industry
or country combination is derived by applying Table 5 where columns indicate the average of the four country-related
subfactor scores, and the rows the average of the five industry-related subfactor scores. Additionally, the IICRA score
is no stronger than '4' if P/C, health, or life insurance premiums comprise less than 1.5% of GDP because such low
penetration rates indicate that the insurance market is at a less mature stage of development. This restriction holds
except for countries where GDP is highly influenced by exports, such as Hong Kong and Taiwan.
30. Four country-related subfactors--economic, political, financial system risk, and payment culture and rule of law--are
scored on a scale from '1' to '6'. The other five, which are industry-related subfactors, are scored positive or '1', neutral
or '3', or negative or '6'. For the four sectors discussed in ¶¶36to 38, each of the four country-related subfactors is
assigned a score of '2'. This is an approximation of the global average of the country-related subfactor scores of the
countries where these sectors' participants operate.
31. Table 4 shows how we would identify and score the proposed IICRA subfactors:
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• Economic risk,
• Political risk,
• Financial system risk,
• Payment culture and the rule of law,
• Return on total capital,
• Product risk,
• Barriers to entry,
• Insurance penetration trends, and
• Institutional framework.
32. The first four subfactors are country risks that affect all industries including insurance while the last five, though
influenced by country risks, are specific to the insurance industry. The first three assessments are drawn from Standard
& Poor's sovereign and bank industry criteria (see table 4). The inclusion of those and of the fourth subfactors reflects
that:
• The industry's revenue and profitability dynamics are highly sensitive to the local economic environment.
• The industry is typically highly regulated.
• The industry is dependent on the banking sector for the transmission of money, on the provision of loans and
facilities and, both with respect to fixed-income investment instruments and to its own financing, on deep and liquid
debt capital markets.
• The industry is affected by the quality of the legal framework and of the judicial system.
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33. Under the proposed criteria, an insurer operating in a single country and single insurance industry sector is assigned
the IICRA score associated with that country and sector.
34. For insurers operating in more than one country or sector, we assign a weighted-average IICRA score by calculating
the rounded-off average of the IICRA scores for the insurer's country and sectors, weighted by its gross premiums. We
combine IICRA scores from the insurer's main markets to cover at least 90% of its business by premiums, up to 20
countries.
35. In rare cases, and when the averages of the country- or industry-related subfactors described in ¶30 or, for a given
insurer, the premium-weighted average of its relevant IICRAs, falls within 0.2 of a cutoff point, the assessment also
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factors in the directional trend of the overall IICRA. In such cases, the IICRA may be modified by one category. For
example, of the three averages in this paragraph, one might fluctuate from one year to the next from 3.4 to 3.6. We will
then assess whether, over the coming five years, the directional trend points more clearly to a '3' versus a '4'.
Table 5
IICRA Assessment
Country risk*
Industry risk*1 2 3 4 5 6
1 1 2 2 3 4 5
2 2 2 3 4 4 5
3 2 3 3 4 4 5
4 3 3 4 4 5 5
5 4 4 4 5 5 6
6 5 5 5 5 6 6
*Equally weighted average of the related subfactor scores.
36. Insurers operating in the P/C reinsurance, life reinsurance, trade credit insurance, and marine protection and
indemnity (P&I) sectors are assigned the sector's global score. This is because they typically write business in multiple
countries around the world, resulting in high levels of geographic diversification. In addition, the domicile of the insurer
has relatively little impact on the aggregate industry and country risks it faces. As indicated in ¶30, for each of these
four sectors, a single, global IICRA applies and incorporates the '2' score for the four country-related subfactors.
37. However, if based on premiums an insurer or reinsurer in these four sectors focuses on a single country or region, an
IICRA is applied at a country or regional level using the process that applies to all other insurers.
38. For the purpose of the proposed criteria, P/C reinsurance includes certain large commercial and industrial business
lines that have similar characteristics to reinsurance because risks are commonly underwritten on a subscription or
coinsurance basis.
1. Economic, political, and financial system risk
39. The economic, political, and financial system risk scores draw on our sovereign criteria for the first two elements and
on our Banking Industry Country Risk Assessment (BICRA) criteria for the last element. The economic score in IICRA
reflects the sovereign economic score as well as sovereign monetary and external scores and the BICRA score for
external imbalances. The financial system risk score reflects both the BICRA's banking industry risk score, with
additional weight given to the breadth or narrowness of domestic capital markets, and the domestic private sector's
access to external funding.
2. Payment culture and rule of law
40. The payment culture and rule of law is another factor that influences an insurer's performance, given how important
contractual arrangements are to this industry. The assessment of this subfactor addresses the predictability of the legal
framework. The analysis is informed by external indicators, such as the World Bank's governance indicators for the
rule of law, ease of enforcing contracts and control of corruption, and Transparency International's corruption
perceptions index.
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3. Return on total capital (ROTC)
41. The criteria propose to assess ROTC (see definition in glossary) on the aggregate profits and the aggregate total capital
of at least 60% of industry participants by premiums (including all rated participants), or all rated participants,
whichever is greater (see table 4).
42. Where we have insufficient public data to meet the 60% threshold, we typically assess the subfactor based on available
evidence.
43. For markets where ROTC is either not available, volatile due to the influence of unrealized investment gains or losses,
or low due to very high levels of capitalization, table 6 applies.
44. If there is insufficient evidence to form an opinion or the available evidence suggests excessive risk-taking is taking
place, the score is "negative."
45. Note that the proposed criteria treat asset allocation and capitalization policy as entity-specific features.
Table 6
Alternative Metrics For Assessing ROTC*
Subfactor / score 1 (positive) 3 (neutral) 6 (negative)
Life insurance
New business margin (see
glossary)
The average margin over the past
five years is 2% or higher
The average margin over the past five
years is between 2% and 1% or lower
The average return over the past
five years is 1% or lower
Return on assets or
prebonus pretax
earnings/total assets*
For either of the two metrics, the
insurer's average return over the
past five years is 1% or higher
For either of the two metrics, the
insurer's average return over the past
five years is between 1% and 0.5%
For either of the two metrics, the
insurer's average return over the
past five years is 0.5% or lower
P/C insurance
Return on revenue The average return over the past
five years is 12% or higher
The average return over the past five
years is between 12% and 5%
The average return over the past
five years is 5% or lower
*This alternate metric is used only if the new business margin metric is not available. Note: The metrics in this table are defined in "Assumptions
For Quantitative Metrics Used In Rating Insurers Globally," published on April 14, 2011. P/C--Property/casualty. ROTC--Return on total capital.
46. In our opinion, risk taking is excessive if we perceive that any of the following conditions exists:
• Insurers have relaxed their underwriting standards. For example, premiums, prices, or policy terms and conditions
have been or are being significantly reduced; or new and unproven products have been introduced and are growing
rapidly;
• Mis-selling risk is heightened; for example, policy lapse rates are unusually high or policyholders are filing, or are
expected to file, compensation claims for products sold to them;
• Commissions to intermediaries have significantly increased; or
• Premiums are insufficient to achieve long-term profitability.
47. Where the historic average could misrepresent the long-term performance we expect from the sector, we may base
our assessment on our expectations. This is appropriate, in our view, when the average is skewed by, for example:
• The history of catastrophic events: for example, if the occurrence of catastrophic events has proved abnormally high
(or low) over the past five years, we base the assessment on our normalized expectations;
• "Hard" or "soft" insurance markets (see glossary) that are unlikely to persist; for example, if markets have been
predominantly hard over the past five years, we base the assessment on our expectations of market conditions
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which may include lower premium rates or weaker terms and conditions; or
• The investment return contribution to ROTC, or to metrics in table 6, is unusually high or low because of interest
rates or realized or unrealized investment gains. For example, we may adjust interest income received to reflect
expected interest rates and disregard realized and unrealized investment gains to the extent that they exceed our
expectation.
4. Product risk
48. Some product-specific elements can cause ROTC (or, if ROTC is not available, metrics in table 6) to be more volatile.
For example:
• Property insurance underwriting results may be materially affected by catastrophes.
• Casualty insurance underwriting results may be materially affected by unpredictable settlements, for example,
where legal systems include jury-awarded or punitive damages, or where claimant compensation arrangements or
liability laws change frequently.
• P/C underwriting results may be materially affected by fraud.
In another example, material marketwide life insurance asset-liability mismatch risk may exist, such as: variable
annuities with living benefit guarantees; long-term care insurance; no lapse-guarantee universal life; insurance
liabilities backed materially by equities (by management choice or because fixed-income instruments of sufficient
duration are not sufficiently available); or where low or negative spreads exist due to current interest rates at or below
contractual guaranteed rates.
49. Each of the sources of volatility described in the previous paragraph is assessed, for ROTC, or for the metrics in table
6, as high risk, moderate risk, or low risk; and we may identify and assess further industry- or country-specific sources
of volatility stemming from product risk. In addition, if catastrophe risk is comprehensively reinsured, that source of
volatility is not assessed as high risk.
50. The product risk score is "positive" if each of the sources of potential volatility in ROTC, or in the metrics in table 6, is
assessed as low risk.
51. The score is "negative" if any of the sources of potential volatility is assessed as high risk.
52. In all other cases, product risk is scored "neutral."
5. Barriers to entry
53. Insurance is typically prudentially regulated, usually resulting in at least moderate barriers to entry. These barriers may
be legal, regulatory, or operational (see ¶¶55 to 57). They are assessed as either high, low or, in the case of operational
barriers, moderate.
54. If any of these barriers is assessed as high, the overall score is "positive," but the overall score is only "negative" if all
barriers are assessed as low. In all other cases, the overall score is "neutral."
55. Legal barriers are assessed as high where access is limited to named insurers under the law or as part of government
policy in the relevant industry-country combination.
56. Regulatory barriers are assessed as high where regulatory practices involve either exceptionally demanding or lengthy
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procedures for licensing new insurers.
57. Operational barriers are assessed as high if availability is low and costs are high for resources such as management,
staff, systems, data, and sources of distribution in the relevant industry-country combination. Operational barriers are
assessed as low if availability is high and costs are low for resources such as management, staff, systems, data, and
sources of distribution in the relevant industry-country combination.
6. Insurance penetration trend
58. Trends in insurance penetration enable us to assess the potential for the industry to grow, relative to overall economic
growth, which is factored in the economic risk subfactor. The assessment is based on the growth or contraction of the
ratio of life and P/C insurance premiums as a proportion of GDP. Where GDP growth is volatile, where possible we
may remove volatile components (e.g. non-oil GDP growth may be a more suitable metric in certain countries). In rare
cases, the assessment is adjusted to exclude offshore business.
59. The subfactor score is "neutral" for the industries assessed at a global level, i.e., P/C reinsurance, life reinsurance, trade
credit insurance, and marine P&I. However, if a major industry development (e.g. a regulatory change) results in
substantially increased or decreased product demand, the score would be "positive" or "negative," respectively.
60. The subfactor score is "positive" if we expect insurance penetration to grow significantly over the next three to five
years. Typically, significant growth would correlate with more than 10% growth in the ratio of insurance premiums to
GDP (for example from 2.0% to over 2.2%). However, if, in our view, growth is being achieved through excessive
risk-taking, the score would be reduced to "neutral" (see ¶46).
61. The subfactor score is "negative" if we expect the ratio of insurance premiums to GDP to reduce significantly over the
next three to five years. Typically, a significant reduction in the ratio would correlate with more than a 5% reduction in
the ratio of insurance premiums to GDP (for example from 2.0% to under 1.9%).
62. In all other cases, insurance penetration is scored "neutral." In such cases, no penalty is incurred for excessive risk
taking, which the ROTC subfactor already addresses. Examples of excessive risk taking are provided in ¶46.
63. Where we believe the historic average misrepresents our expectation of the sector's long-term trend, we base our
assessment on the expected level.
7. Institutional framework
64. The strength of the institutional framework chiefly depends on regulatory oversight of the industry. Therefore, the
score is "positive" if our assessment of regulatory oversight is strong, "neutral" if it is moderately strong, and "negative"
if it is weak. The score is, however, reduced by one category (for example, from positive to neutral) where we observe
a clear deficiency in the standards of either governance or transparency within the industry-country combination.
65. Regulatory oversight is assessed based on how sophisticated and effective the authorization and ongoing supervision
requirements of insurers are in the relevant industry-country. Elements in the assessment include the depth and
frequency of monitoring of insurers and the regulator's track record of intervening to reduce or mitigate the effects of
insurer failures.
66. Only a few industry-country combinations are likely to have strong regulatory oversight under the proposed criteria.
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Weak regulatory oversight assessments would be more frequent, often associated with emerging markets. If regulatory
oversight is not assessed as strong or weak, it is assessed as moderately strong.
67. The proposed criteria assess governance standards by evaluating the balance of stakeholder interests among owners,
managers, lenders, and policyholders. Corporate governance that is transparent, prudent, and independent of undue
external influences lowers the risk of an insurance industry. Conversely, opaque, imprudent governance that does not
materially constrain those external influences increases that risk.
68. The proposed criteria assess transparency by evaluating the frequency and timeliness of reporting, and the quality and
standardization of financial reports. The criteria examine the quality of accounting and disclosure standards, including
whether an insurance industry has adopted International Financial Reporting Standards (IFRS), U.S. generally
accepted accounting principles (GAAP) or publicly available comprehensive regulatory returns. The assessment is also
informed by the extent and effectiveness of a country's auditing requirements.
C3. Competitive Position
69. The proposed criteria assess the level of an insurer's competitive position under six subfactors scored "positive,"
"neutral," or "negative" (see table 7):
• Operating performance,
• Differentiation of brand or reputation,
• Market share,
• The level of controlled distribution channels,
• Geographic diversification, and
• Other diversification.
70. Table 8 shows how the proposed ratings framework for insurers uses these subfactors to assess competitive position
on a scale from '1' (extremely strong) to '6' (weak).
71. Underperformance or outperformance, as defined in table 9, influences four of the subfactors.
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Table 8
Competitive Position Assessment
Score and
assessment* What it means Guidance (see table 7)
1 (extremely strong) An insurer's business operations make it significantly less
vulnerable to adverse operating conditions than the IICRA score
indicates.
A majority of subfactors is positive and it is rare for
one to be negative.
2 (very strong) An insurer's business operations make it somewhat less
vulnerable to adverse operating conditions than the IICRA score
indicates.
Positive subfactors clearly outweigh negative
subfactors.
3 (strong) An insurer's business operations are representative of the IICRA
score.
Generally, positive subfactors slightly outweigh
negative subfactors.
4 (adequate) An insurer's business operations make it somewhat more
vulnerable to adverse operating conditions than the IICRA score
indicates.
Positive and negative subfactors balance each
other; or most subfactors are neutral and a minority
is negative.
5 (less than adequate) An insurer's business operations make it significantly more
vulnerable to adverse operating conditions than the IICRA score
indicates.
Negative subfactors outweigh positive subfactors if
any.
6 (weak) An insurer's business operations make it very considerably more
vulnerable to adverse operating conditions than the IICRA score
indicates
Most subfactors are negative and it is rare for one
to be positive.
*The score is no stronger than '5' if either the insurer's gross annual premiums or its total assets do not consistently exceed approximately $50
million or equivalent. If neither geographic diversification nor other diversification is positive, or if operating performance is negative, the score is
no stronger than '3'.
Table 9
Assessment Of Operating Underperformance And Outperformance
Operating performance
metrics* Examples of consistent and material underperformance
Examples of consistent and material
outperformance
All insurers: return on capital The insurer's average return over the past five years is
one-quarter (e.g., 7.5% versus 10%) below the peer group
average, or over the past two years is less than half of the peer
group average.
The insurer's average return over the past
five years is one-quarter more than the peer
group average.
Life insurers including composite insurers†
New business margin The average return over the past five years is 25 basis points
lower than the peer group average, or over the past two years is
50 basis points lower than the peer group average.
The average return over the past five years
is 25 basis points higher than the peer group
average.
Return on assets, prebonus
pretax earnings/total assets, and
return on embedded value‡
For any of the three metrics, the insurer's average return over
the past five years is one-quarter below the peer group average,
or over the past two years is less than half of the peer group
average.
For two of the three metrics, the insurer's
average return over the past five years is
one-quarter more than the peer group
average.
P/C insurers including composite insurers
Return on revenue and
combined ratio
The average return over the past five years is for either metric 5
percentage points lower than the peer group average, or over
the past two years is for either metric 10 percentage points
weaker than the peer group average.
The average return over the past five years
is for either metric 5 percentage points
stronger than the peer group average.
*These metrics are defined in "Assumptions For Quantitative Metrics Used In Rating Insurers Globally," published on April 14, 2011.
†Not all of these metrics are applicable or available for all insurers involved in life insurance because of different accounting and reporting
frameworks. The assessment is based on those that are applicable and available.
‡These metrics are used only if the new business margin metric is not available.
1. Operating performance
72. The analysis of the operating performance subfactor complements that of the other subfactors in that a "positive" score
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is a likely consequence of a healthy competitive position. An insurer achieves a "positive" score if its operating
performance, as defined in table 9, is materially stronger than that of its peers.
73. It may also achieve a positive score if its gross expense ratio (P/C) or general expense ratio (life) is consistently at least
10% lower than the average of peers with similar distribution channels and similar products (i.e., under 27% if the
average is 30%). These ratios are defined in ¶150 and ¶113 of "Assumptions For Quantitative Metrics Used In Rating
Insurers Globally," April 14, 2011.
74. An insurer has a "negative" score if it consistently and materially underperforms peers, as defined in table 9. It has a
"neutral" score if it does not meet the requirements for either a "positive" or "negative" score.
2. Differentiation of brand or reputation
75. The insurer's differentiation of brand or reputation relative to its peers is assessed from the perspective of current or
potential policyholders and, for intermediated business, their intermediaries.
76. Most insurance markets are competitive and commoditized to a large degree, leaving most industry participants
relatively undifferentiated from their peers. Therefore, most insurers are likely to be scored "neutral." Only a small
minority of rated insurers are likely to achieve a "positive" assessment. An insurer has a "neutral" score if it does not
meet the requirements for either a "positive" or "negative" score.
77. If at least one of the following applies to a very substantial proportion--typically 50% or more of consolidated gross
premiums--of the overall business of a insurer, the score is "positive":
• The insurer has consistently positive media commentary or consistently positively differentiated results in
policyholder or intermediary surveys.
• The insurer is consistently successful in product innovations, i.e., the organization is early to market in new product
design, and is among the first to raise premium rates when rates start to rise or among the last to lower premium
rates when rates start to fall.
• A majority of its business is written on a subscription or coinsurance basis (this applies to reinsurance and large
commercial or industrial business); and the insurer is a leader in terms of premium rates and product design.
Leaders significantly influence premium rates and product design.
78. If at least one of the following applies to a significant proportion (typically 50% or more of consolidated gross
premiums) of the overall business of an insurer or reinsurer, the score is "negative":
• It has consistently negative media commentary or consistently negatively differentiated results in policyholder or
intermediary surveys.
• It is consistently unsuccessful in product innovations, i.e., it is slow to market in new product design, or is among
the last to raise premium rates when rates start to rise, or among the first to lower premium rates when rates start to
fall.
• A majority of its business is written on a subscription or coinsurance basis (this applies to reinsurance and large
commercial or industrial business); and the insurer is a follower, rather than a leader, in terms of premium rates and
product design.
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3. Market share
79. The market share subfactor is scored either "positive" or "neutral." Market share is measured by an insurer's share of
gross premiums (for P/C insurers and for reinsurers) or policyholder obligations (for life insurers) for the market where
it participates.
80. The subfactor is scored "positive" if an insurer has a strong market share. Examples of strong market share include, for
outperforming insurers (see table 9), the following:
• The insurer has a sustainable global market share of approximately 20% or more in one of the following global
industries: P/C reinsurance, life reinsurance, trade credit insurance, and marine P&I insurance;
• The insurer has a sustainable market share of approximately 20% or more in at least one significant country or
significant U.S. state; or
• The insurer consistently ranks among the top five insurers by market share, or its market share is at least 90% of
that of the fifth-largest, in three or more significant markets.
81. For the purposes of assessing market shares, a significant market is defined as a P/C insurance line of business or a life
or health insurance product type for each significant country (see table 10).
Table 10
Definition Of Significant Market
Sector
Significant countries, U.S. regions or
states* Lines of business or product types
P/C lines of business†
Significant countries: U.S., Canada, Japan,
China, U.K., France, Germany, Italy, Spain,
Netherlands, Australia, Brazil, South Korea, and
Russia
Auto/motor (liability and property), personal property, commercial property,
ships, aircraft and cargo (liability and property), workers'
compensation/employers' liability, other liability, personal accident and short
term health, and credit/surety/pecuniary
Significant U.S. regions: Northeast, Midwest,
West, South
Significant U.S. states: California, Florida, New
York, and Texas
Life/health insurance product types†
Significant countries: U.S., Canada, Japan,
China, U.K., France, Germany, Italy, Spain,
Sweden, Switzerland, Netherlands, Australia,
Brazil, South Korea, India, Taiwan, and South
Africa
Individual life or long-term health protection, group life/health protection, group
pension, unit-linked or separate account savings (including U.S. variable
annuities), nonunitized savings (including with-profit and U.S. fixed annuities),
and annuities (or pensions) in payment
Significant U.S. regions: Northeast, Midwest,
West, South
Significant U.S. states: California, Florida, New
York, and Texas
*These criteria assumptions reflect sector total insurance premiums written exceeding $30 billion in each country based on Swiss Re's Sigma
study "World Insurance in 2011," but excluding financial centers comprising mainly captive insurers of corporates or global insurers. †Includes
reinsurance of these lines of business.
Examples of significant markets would include: German individual life/health insurance protection, reinsurance of Japanese P/C insurance, and
insurance of Californian workers compensation.
82. Insurers with large market shares in nonsignificant countries are not scored "positive," nor are insurers with large
market shares in narrow subclasses of business (e.g., subclasses of "other liability," see table 10).
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4. Level of controlled distribution channels
83. The proposed criteria assess the degree to which an insurer can control, or significantly influence, its distribution
channels. The assessment factors in affiliates' distribution channels.
84. Controlled distribution channels include:
• Direct marketing (direct mail, telephone, Internet),
• Employed sales forces,
• Distribution through the insurer's affinity groups (including certain industries, professions, associations, trades
unions, public service employees, and the armed forces),
• Distribution through banks not owned by the insurer or its parent or under common control, but under exclusive
bancassurance contractual relationships (i.e., the bank's network distributes only that insurer's policies) that we
expect will last a decade or more, and
• Tied agents (see glossary).
85. Controlled distribution channels do not include:
• Independent intermediaries or brokers,
• Non-tied agents (see glossary),
• Premiums produced from price comparison websites, and
• Distribution through banks not owned by the insurer or its parent, or under common control that does not qualify as
controlled under the preceding paragraph.
5. Geographic diversification
86. Diversification, particularly geographic, is fundamental to the insurance business.
87. The subfactor is scored "positive," "neutral," or "negative" based on:
• The insurer's geographic presence, i.e., the number of those countries with a large surface area and a significant
market size, where the insurer writes business; and
• The level of insurance penetration, defined as in ¶58, in that geographic area.
88. The score, if not positive or neutral, is negative. Table 11 provides guidance to score this subfactor, subject to the
following:
• In all countries apart from the U.S., a meaningful presence in all significant populated regions of a country is
necessary for the insurer's presence to support a "neutral" or "positive" assessment.
• Insurers primarily present in certain fast-growing markets, including certain large emerging economies, tend to be
scored as neutral under this subfactor because the criteria incorporate strong sustainable market growth elsewhere,
notably in the IICRA.
Table 11
Scoring Geographic Diversification
Geographic
presence and
market size
Insurance
penetration Score
Large Significant Positive
Scoring examples: any one of the following (a) to (f) situations applies:
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Table 11
Scoring Geographic Diversification (cont.)
(a) More than 50% of the insurer's business is derived from one or more of the four global insurance
sectors defined in ¶¶36 to 38.
(b) It is globally diverse; that is, it is present in the U.S., Europe, Canada, or developed Asia. For example,
it is present in three of these countries or regions where each country or region represents 15% or more
of premiums, or is present in at least two of these countries or regions, where each represents 25% or
more of premiums.
(c) It is diverse within the U.S. For example, it is present in (i) 20 or more U.S. states where each state
represents more than 2% of premiums; or (ii) 15 or more U.S. states where each state represents more
than 3% of premiums; or (iii) 10 or more U.S. states where each state represents at least 2% of premiums,
and where five or more of these states each represents more than 10%.
(d) It is diverse within Europe. For example, it is present in (i) 12 or more European countries where each
represents more than 4% of premiums; or (ii) nine or more European countries where each represents
more than 5% of premiums; or (iii) six or more European countries where each represents at least 4% of
premiums, and where three or more each represents more than 10%.
(e) It is diverse within developed Asia. For example, it is present in three or more of Japan, China, South
Korea, India, Taiwan, and Australia, where each represents more than 15% of premiums.
(f) It is diverse within China, using principles similar to those applied for the U.S. in (c) above.
Large
Less
significant Neutral
Scoring examples: Insurers in large developing insurance markets, e.g., with operations representing
more than 50% of premiums in countries such as China, India, or Brazil.
Small Significant Neutral
Scoring examples: Insurers (not scored as "positive") in developed insurance markets with operations
representing more than 50% of premiums in any of the following: the U.S., Canada, Europe, Japan,
Australia, New Zealand, Singapore, South Korea, or Hong Kong.
Note: In this table, "Europe" and "European countries" designate countries of the EEA (European Economic Area) and Switzerland. "Developed
Asia" designates Japan, China, South Korea, India, Taiwan, and Australia. Premiums designate an insurer's total gross premiums.
6. Other diversification
89. An insurer's competitive position may benefit from other sources of diversification, which is assessed according to
table 7.
D. Assessing The Financial Risk Profile
D1. Deriving The Financial Risk Profile
90. The proposed criteria view the financial risk profile (FRP) as the consequence of decisions that management makes in
the context of its business risk profile and its risk tolerances. These decisions include the extent and manner in which
the insurer is capitalized, factoring in prospective growth and retained earnings, and the amount and types of financial
flexibility it maintains, relative to its risks.
91. The starting point for evaluating an insurer's FRP is the analysis of capital and earnings (¶¶93-121), including the
regulatory capital filter and the representativeness of modeling modifier, resulting in a score on a '1' to '8' scale. We
will then adjust this score, as described in table 12 below, for the risk position (¶¶122-150) and financial flexibility
(¶¶151-178) scores. For example, the combination of a capital and earnings score of '4' with a strong risk position and
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weak financial flexibility scores would result in an FRP of '5', i.e. (4-1)+2. The FRP score ranges from '1' to '10'.
92. An insurer's FRP score is also capped by its total asset quality: at '3' when the latter is "adequate," at '7' when it is "less
than adequate," and at '8' when it is "weak." Total asset quality is the weighted-average credit quality of bonds, loans,
and bank deposits representing shareholders' equity and nonparticipating insurance liabilities. It is "adequate" when
weighted-average credit quality is in the 'BBB' category, "less than adequate" when in the 'BB' category, and "weak"
when 'B+' or lower. However, total asset quality improves by one category if the investment portfolio diversification
subfactor in risk position is "positive" (if average credit quality is in the 'BBB' category, the FRP is not capped).
D2. Capital And Earnings
93. Capital and earnings measures an insurer's ability to absorb losses by assessing capital adequacy prospectively, using
quantitative and qualitative measures. Capital adequacy first compares currently available capital resources with
capital requirements by applying Standard & Poor's capital model and then assesses the insurer's ability and
willingness to build capital through net retained earnings and thereby fund growth.
94. Under the proposed criteria, an insurer's capital and earnings is a function of three subfactors: regulatory capital
adequacy, capital adequacy, and representativeness of modeling. The last two are relevant only when the first one is
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scored "less than adequate" or "adequate."
95. Capital and earnings is scored on a scale of '1' to '8', where '1' is the strongest.
96. If the representativeness of modeling subfactor is scored "positive," a capital adequacy score of '7' moves to the
stronger score of '6' and a score of '8' moves to '7'.
97. If the representativeness of modeling subfactor is scored "negative," a capital adequacy score of '1' moves to the
weaker score of '2', a score of '2' moves to '3', and a score of '3' moves to '4'.
1. Regulatory capital adequacy
98. The regulatory capital adequacy subfactor measures near-term regulatory intervention risk, principally through the
buffer between the insurer's available regulatory capital (see box 3) and its minimum capital requirement (MCR) that
may trigger the regulator's "ultimate regulatory action" to address current or expected deficiencies in capital or
liquidity over the next year. Ultimate regulatory action includes required closure to new business, withdrawal of
license, or placement under formal regulatory control.
99. If no clear quantitative regulatory capital requirement exists against which to measure intervention risk, the analysis
looks for evidence in the regulatory framework and historical experience to gauge the proximity of intervention.
Regulatory requirements are clear, for example, in the U.S. and will be in Europe as well under the EU's Solvency II
directive. In European countries, under Solvency I, and in most other countries they are currently less clear.
100. The subfactor is scored "adequate," "less than adequate," or "weak." It cannot be scored more favorably since the
remoteness of regulatory intervention does not enhance creditworthiness.
101. If the evidence suggests that the regulator is unlikely to take action, a score of "adequate" will be assigned.
102. Where quantitative regulatory capital requirements are clear, the score is "weak" if the insurer's regulatory capital
adequacy ratio:
• At the latest measurement date, was at or below 1.2 times (x) the MCR and is likely to remain so on the next
measurement date, or
• Given observed and potential volatility, is highly likely to breach that 1.2x level at its next measurement date or
within one year, whichever is later.
103. Where quantitative regulatory capital requirements are clear, the score is "less than adequate" if the insurer's
regulatory capital adequacy ratio:
• At the latest measurement date, was only marginally above the MCR and is likely to remain so at the next
measurement date. Typically, "marginally above" would mean within 1.2x-1.5x the MCR under the proposed
criteria, but this could vary according to Standard & Poor's expectation of the regulator's behavior.
• Is likely to be only marginally above the MCR at the next measurement date or within one year, whichever is later.
104. The score is "adequate" in all other cases.
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2. Capital adequacy
105. The capital adequacy subfactor considers capital prospectively by evaluating, at four confidence levels, the amount of
TAC relative to risk-based capital requirements that an insurer is likely to hold over the current and next two years to
cover, over the expected life of its portfolio, losses from the various risks it carries. Prospective capital adequacy is the
level where, at the end of the projection period, TAC most closely matches the RBC requirement (see table 13), subject
to earnings quality and to the front- versus back-loaded nature of any improvement in capital adequacy.
106. Capital adequacy is scored from '1' to '8', where '1' is strongest.
107. The primary source of capital generation depends on an insurer's ability and willingness to increase TAC through
retained earnings. Thus, the quantitative analysis compares an insurer's TAC with its RBC requirements at four
confidence levels, factoring in prospective TAC generation, RBC requirement growth, and changes in risk profile.
Additions or reductions are made to RBC requirements as determined in "A New Level Of Enterprise Risk
Management Analysis: Methodology For Assessing Insurers' Economic Capital Models," published on Jan. 24, 2011.
The size factor adjustment and invested asset concentration risk charge in the capital model criteria (see ¶¶127 to 132
of these criteria) do not apply since both are already factored in the proposed representativeness of modeling and
investment portfolio diversification subfactors.
108. The qualitative analysis is performed through an assessment of earnings quality (see ¶¶113 to 114). Earnings quality
informs the overall capital and earnings assessment for an insurer by setting higher benchmarks for TAC generation.
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109. The capital adequacy analysis follows four steps:
• For the past financial year-end, the insurer's TAC and RBC requirements at various confidence levels are
determined through the capital model's quantitative analysis.
• For the end of the current and two subsequent years, the RBC requirement is projected using the RBC requirement
at the end of the previous financial year and the rate of RBC requirement growth or contraction over the year. For
example, if the RBC requirement was $12,000 at year-end 2011, and we expected 5% business growth, the RBC
requirement at year-end 2012 would be $12,600.
• Earnings quality is scored as "high" or "low," according to ¶¶113 and 114. The impact of earnings quality is
described in ¶¶115 and 117.
• Prospective TAC generation and TAC are calculated, as described in ¶¶115 to 117, for each of the current and two
subsequent years.
110. The capital and earnings score is set by comparing, according to table 13, the redundancy or deficiency of TAC
relative to the RBC requirement at four confidence levels at the end of the projection period. If earnings quality is low,
the projection does not strengthen the score by more than two notches from the level the last financial statements
imply; if earnings quality is high, the projection does not strengthen the score by more than three notches. This is to
reflect the inherent uncertainties in projecting a sustainable improvement in capital adequacy. In addition, a stronger
score based on projections applies only if the improvement occurs primarily in the current and next year.
111. For a life insurer, RBC requirement growth is typically the growth rate in total assets, defined as the sum of investment
return and net flows, which themselves are new premium and deposits, less claims payments. For a P/C insurer, RBC
requirement growth is typically that of net premiums written. For a multiline insurer, RBC requirement growth is first
computed separately for its life and P/C businesses, and then summed.
112. In addition, the growth assumptions in the previous paragraph incorporate the evaluation of any material changes in
the risk profile that could influence future RBC requirements. The effect of foreign exchange is assessed as neutral
unless particular foreign exchange mismatches exist for an insurer and the mismatch is in a volatile currency.
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113. Earnings Quality. Earnings quality is assessed as "low" or "high." "Low" earnings quality indicates higher-risk,
more-volatile earnings that add uncertainty to forecasts for an insurer's earnings and capital.
114. Earnings quality is scored high if all of the following features are present on a continuing basis, where "modest
proportion" typically indicates approximately one-quarter:
• An insurer's earnings comprise mostly operating earnings, rather than the contribution from realized or unrealized
investment gains and losses.
• Standard & Poor's capital model's one-in-250-year catastrophe charge (see ¶¶152 to 155 in the capital model
criteria) is less than annual operating earnings.
• Spread-based earnings are a modest proportion of operating earnings.
• Losses from a hypothetical 25% decline in equity markets represent at most a modest proportion of operating
earnings, whether or not the losses flow through the profit and loss statement.
• The insurer's premium-weighted IICRA (see ¶¶33 to 38) is no weaker than '3'--otherwise the industry and country
environment raises uncertainty in forecasts.
115. The absolute growth in TAC is calculated as after-tax earnings, minus other changes in TAC. If earnings quality is low,
any positive absolute growth in TAC is halved, except for the portion that has already materialized (for example, a
completed equity issue) since the most-recent financial data were released.
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116. "Other changes in TAC" is calculated as:
• Dividends we expect an insurer to declare. Although high dividends are a buffer against earnings volatility for an
insurer with a flexible dividend policy, insurers are generally reluctant to cut dividends, except when under severe
stress. Therefore, when planned dividends are higher than the last ones paid, the calculation takes them into
account, and when they are lower, the calculation takes the dividend cut into account only when it is reasonably
certain.
• Plus common equity repurchases that we expect the parent company to make.
• Minus equity issuance that is reasonably certain to happen in the first year.
• Plus or minus additional changes in TAC, such as changes in the revaluation reserve since the last balance sheet
date, or 50% of the change in value of in-force that we expect.
117. In the example in table 14, earnings quality is "high" and regulatory capital adequacy "adequate." The insurer's TAC is
growing faster than its business, strengthening capital adequacy. At year-end 2011, TAC was closest to a 'BBB' RBC
requirement level and would have been scored '5' without forward-looking analysis. But the analysis indicates that
TAC will be closest to an 'A' level at year-end 2014, and it is therefore strong enough at year-end 2012 for a capital
adequacy score of '4'.
Table 14
Illustrative Example Of Scoring Of Capital Adequacy
Forecast for
subsequent year (e.g.
2014)
Forecast for next
year (e.g. 2013)
Expected for
current year (e.g.
2012)
End of last year
(e.g. Dec. 31,
2011)
RBC requirement growth (see ¶¶117 and 118)
during the year
5% 5% 5% N/A
Year-end RBC requirement in U.S. dollars at
various confidence levels
At 'AAA' $13,892 $13,230 $12,600 $12,000
At 'AA' $12,734 $12,128 $11,550 $11,000
At 'A' $11,576 $11,025 $10,500 $10,000
At 'BBB' $9,261 $8,820 $8,400 $8,000
Beginning-of-year TAC $10,450 $9,900 $8,900 N/A
Aftertax operating income as component of
change in TAC (after minority interests) during
the year
$1,500 $1,200 $1,500 N/A
Other changes in TAC (see ¶122) during the
year
$-700 $-650 $-500 N/A
Year-end TAC $11,250 $10,450 $9,900 $8,900
Rating symbols in this table refer to confidence levels in ¶11 of the capital model criteria. N/A--Not applicable. RBC--Risk-based capital.
3. Representativeness of modeling
118. The representativeness of modeling subfactor determines whether the analysis of prospective capital adequacy has
overstated or understated capital and operating performance. This differs from the risk position factor, which identifies
unmodeled risks that can affect capital volatility.
119. The representativeness subfactor is scored "positive," "negative," or "neutral." Most insurers are likely to be scored
"neutral" under the proposed criteria.
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120. Representativeness of modeling is positive if the capital model materially overstates specific product risks of the
insurer.
121. Representativeness of modeling is scored "negative" if:
• The capital model materially understates specific product risks of the insurer;
• TAC is small (for example, for U.S. insurers, under $1 billion), making it more vulnerable to single-event losses
beyond that assumed in the capital model;
• Acquisition or shareholder-distribution risks may weaken capital adequacy beyond what can be reliably quantified;
or
• The capital model results depend heavily on weaker forms of capital (for example, if value of in-force or other weak
forms of capital contribute more than 50% of TAC).
D3. Risk Position
122. Risk position assesses material risks that the capital model does not incorporate and specific risks that it captures, but
that could make an insurer's capital and related financial ratios significantly more, or significantly less, volatile.
123. Risk position is scored on a scale of '1' to '4', where '1' is strongest, based on an analysis of five subfactors (see table
16).
124. The five risk position subfactors are:
• Exposure to employee benefits (see ¶¶125 to 128),
• Foreign currency exposure (see ¶¶129 to 133),
• Investment leverage (see ¶¶134 to 138),
• Investment portfolio diversification (see ¶¶139 to 147), and
• Additional sources of capital volatility (see ¶¶148 to 150).
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Table 16
Risk Position Assessment
Score Descriptor Guidance (see table 15 and ¶¶125 to 150)
1 Strong The insurer's prospective capital adequacy has a low volatility risk, and the insurer has no material risk
concentrations. This is typically associated with none of the subfactors being scored negative, and one or more
being scored positive.
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Table 16
Risk Position Assessment (cont.)
2 Adequate The insurer's prospective capital adequacy has average volatility risk, or certain risks are not incorporated in the
capital model or risk concentrations exist, but are not material. This is typically associated with all subfactors being
scored neutral; or with "additional sources of capital volatility" being scored neutral or positive, and at most two of
the other subfactors being scored negative.
3 Less than
adequate
The insurer's prospective capital adequacy has somewhat above-average volatility risk, or certain risks are not
incorporated in the capital model or risk concentrations exist, and these may be material. This is typically
associated with "additional sources of capital volatility" being scored negative; or with three subfactors being
scored negative when the ERM risk controls subfactor is not scored negative.
4 Weak The insurer's prospective capital adequacy has clearly above-average volatility risk, or certain risks are not
incorporated in the capital model and risk concentrations exist, and these are significant, or some investment risk
characteristics exist that could cause severe capital stress, i.e., the capital position would be so weakened that the
company is no longer able to effectively compete in markets, and may simultaneously face liquidity strain. This is
typically associated with four or five subfactors being scored negative; or with three subfactors and the ERM risk
controls subfactor being scored negative.
1. Exposure to employee benefits
125. This subfactor seeks to capture an insurer's exposure to employee postemployment benefit obligations (including
pension and retiree health care benefits) in terms of both liability and asset risks, whether these are recognized on the
balance sheet or not. To do this, the proposed criteria calculate the ratio of total pretax gross employee benefit
obligations (for pensions, the projected benefit obligation), net of any surplus, to TAC.
126. The subfactor is scored "negative" if the ratio indicates that employee benefits represent a high proportion of TAC,
typically of more than one-quarter. Otherwise, the subfactor is scored "neutral."
127. If an insurer does not disclose liabilities and asset values with sufficient precision to calculate the ratio, unless there is
other evidence to indicate that employee benefit risk is low, the subfactor is scored "negative."
128. This subfactor complements the capital model by reflecting the risk of the net employee benefit obligation changing
significantly, as well as the significant dependence of asset and liability values on choices of key assumptions,
including sustainable asset values, life expectancy, discount rates, and future increases in pensionable earnings.
2. Foreign currency exposure
129. This subfactor assesses currency mismatches between assets and liabilities, which the capital model does not capture.
130. The score is "neutral" unless there is a significant mismatch. In that case, the score is "negative."
131. The proposed criteria define a significant mismatch as a situation where, for one or more material currencies, the
mismatch of assets to liabilities in that currency is consistently about 10% or more in either direction.
132. Exposure to foreign exchange rate fluctuations can pose a risk to capital for an insurer with material obligations
denominated in currencies other than its primary operating currency. Most insurers mitigate this risk by holding
foreign currency assets of a similar amount to their foreign currency liabilities. If a company has demonstrated a good
track record of effectively hedging currency mismatches, its hedged amounts would not be included when calculating
the mismatch. For example, euro-denominated assets swapped to yen in support of yen liabilities would be excluded
from the mismatch calculation.
133. The criteria focus on material foreign exchange exposure because an insurer operating in numerous foreign
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jurisdictions will often post mismatches that may not be practical or efficient to eliminate at all times. Such mismatches
do not appreciably alter an insurer's capital position.
3. Investment leverage
134. The investment leverage subfactor identifies a very high or low proportion of high-risk assets in the asset base. To do
this, the criteria calculate the investment leverage ratio, defined as the ratio of volatile or illiquid assets to TAC. The
capital model does not fully capture an insurer's exposure to volatile or illiquid investments. The score is "neutral,"
"positive," or "negative."
135. Slightly different cutoffs in the criteria apply to an insurer if its liabilities with significant profit-sharing characteristics
(such as participating whole-life policies in the U.S. and "with-profit" contracts sold in Europe) exceed approximately
one-quarter of general account liabilities. These insurers can transfer a higher proportion of the investment risk
associated with high-risk assets to their policyholders by reducing crediting rates, bonuses, or dividends to
policyholders.
136. For insurers with significant profit sharing, the subfactor is scored positive if the investment leverage ratio is
consistently low (for example, under about 20%), negative if significantly above 100% (for example, over 150%);
otherwise, the subfactor is scored neutral.
137. For other insurers, which cannot transfer as much of the investment risk to policyholders, the subfactor is scored
"positive" if the investment leverage ratio is consistently very low (for example, under about 10%), and "negative" if
consistently in excess of 100%.
138. For the purpose of this subfactor, the criteria define high-risk assets as the sum of the values, net of hedges, of:
• Speculative-grade or unrated bonds, loans, and deposits at speculative-grade banks;
• Unaffiliated equity investments;
• Equity real estate assets, excluding those the insurer uses for its own operations and those in markets that the
capital model identifies as lower risk, like Switzerland; and
• Investments in partnerships, joint ventures, and other alternative investments.
4. Investment portfolio diversification
139. The investment portfolio diversification subfactor addresses the risk of an insurer's exposure to a given asset sector or
obligor. The capital model does not factor in correlation risks beyond an assumed average degree of asset diversity.
This subfactor identifies insurers with more or less risk than the average by using ratios that gauge sector and obligor
concentration.
140. The subfactor is scored "positive" when the investment portfolio is well diversified among sectors and obligors, that is,
typically where no more than 15% of the portfolio is held within any one sector and no more than approximately 5%
per obligor.
141. The subfactor is scored "neutral" when the investment portfolio is moderately diversified among sectors and
obligors--when concentrations do not exceed 15%-30% to any one sector, or 5%-10% to any one obligor.
142. The subfactor is scored "negative" in all other cases.
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143. The sector ratio in ¶¶140 and 141 is, for each asset sector (as defined in ¶147) in an insurer's portfolio, the ratio of the
related asset value (combining all obligations related to that asset sector) to the insurer's total invested assets.
144. The obligor ratio in ¶¶140 and 141 is, for each obligor in an insurer's portfolio, the ratio of the insurer's investment in
that obligor's equity and debt obligations to total invested assets.
145. For both ratios, the proposed criteria define total invested assets as the sum of cash, cash equivalents, and invested
assets, excluding government obligations. These government obligations are also excluded from the numerator of the
sector and counterparty ratio tests. This is because the proposed criteria already capture the related risk, notably in the
sovereign test in section E4. "Government obligations" are defined as financial obligations issued or guaranteed by an
insurer's domestic national government, or those of domestic GREs, including banks, with an "almost certain" or
"extremely high" likelihood of extraordinary government support (according to ¶18 and table 1 of "Rating
Government-Related Entities: Methodology And Assumptions," Dec. 9, 2010).
146. The proposed criteria define "domestic national government" as the sovereign governments where the insurer
conducts material operations, or those in whose currency the insurer has underwritten policies. In the latter case, given
the absence of currency mismatch, the obligations are excluded only up to the extent they cover such insurance
policies.
147. For the purposes of the above-mentioned ratios, the following definitions of "sector" apply:
• For U.S. municipal bonds: tax-backed and appropriation-backed government obligations, municipal water sewer
obligations, and public university obligations are aggregated by state and each state is viewed as a sector. In
addition, the following types of municipal bonds are viewed as individual sectors on a national basis: private
education, health care, housing revenue, transportation, public power and other utilities, and other not-for-profit
obligations.
• For structured finance securities, each of the following is defined as a sector: residential mortgage-backed securities
(RMBS); commercial receivables; autos; credit cards; student loans; commercial real estate (CRE), including CRE
CDOs (collateralized debt obligations); CDOs of asset-backed securities (ABS); all else, including corporate CDOs.
• For corporate securities, equity and fixed-income obligations are aggregated per issuer, and issuers are allocated to
the following sectors: financial services (excluding covered bonds), industrials, technology, transportation, real
estate, consumer products, retail and restaurant, energy, and utilities.
5. Additional sources of capital volatility
148. The proposed criteria broadly analyze the volatility of capital across all insurance sectors and consider the unique risks
that each insurer has within its exposure portfolio. The assessment takes into account several sources of volatility.
Capital stress, relative to capital model results, can be associated with either model error or event risks that, although
remote, are not otherwise captured in the risk position analysis. Capital stress factors also include prospective
macroeconomic trends such as pronounced inflation or deflation, insured claims trends, and accounting changes.
149. Additional sources of capital volatility are scored "positive" when the volatility in the capital model outcomes is low for
an insurer, "negative" when it may be high, and "neutral" otherwise.
150. Further examples include deficiency in reinsurance protection corresponding to the risk profile or unprotected natural
catastrophe risk, terrorism risk, and extreme mortality or morbidity risk. For life insurers that issue variable annuities
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with guaranteed living benefits, unhedged market exposures can be an acute source of capital deterioration in stressed
market conditions.
D4. Financial Flexibility
151. Financial flexibility uses qualitative and quantitative measures to estimate the balance between an insurer's sources
and uses of external capital and liquidity over the current and next two years.
152. The assessment focuses on external sources of capital and liquidity because the proposed criteria assess internal
sources through other factors.
153. As shown in table 17, the criteria use three subfactors to assess financial flexibility. Each is scored "positive," "neutral,"
or "negative":
• Access to sources of external capital and liquidity (see ¶¶158 to 169),
• Financial leverage (see ¶¶170 to 176), and
• Fixed-charge coverage (see ¶¶177 and 178).
Table 17
Assessing The Subfactors Of Financial Flexibility
Subfactors Positive Neutral Negative
Access to sources of
external capital and
liquidity (see ¶¶158 to
169)
Access to at least three sources, each
substantial with market access that
significantly exceeds the insurer's
liquidity and capital needs
Access to several sources with
sufficient available market access
that exceeds the insurer's liquidity
and capital needs
Access to limited sources or access to
sources that have only limited or
inadequate available market access
relative to current or future needs
Financial leverage (see
¶¶170 to 176)
Financial leverage is low Financial leverage is moderate Financial leverage is high
Fixed-charge coverage
(see ¶¶177 and 178)
Fixed-charge coverage is high Fixed-charge coverage is moderate Fixed-charge coverage is low
154. The last two subfactors consider that a company with high leverage and a low fixed-charge coverage ratio is likely to
have less capacity and flexibility to attract external capital.
155. The scores on the subfactors combine to determine the assessment of an insurer's financial flexibility, on a scale of '1'
("strong") to '4' ("weak") according to table 18.
156. Under the proposed criteria, the financial flexibility metrics are evaluated at the consolidated group level for the GCP
and for the SACP of group members assigned "core," "highly strategic" or "strategically important" group status. For
other group members, the financial flexibility metrics are evaluated at the subsidiary level; a subsidiary's financial
flexibility score is typically capped by its parent group's financial flexibility. This is because a subsidiary's access to the
market would likely be constrained if it belonged to a weaker group.
157. However, a subsidiary's financial flexibility could exceed its majority owner's financial flexibility if a substantial
minority interest in it is held by a stronger group or held publicly and widely.
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Table 18
Financial Flexibility Assessment
Score Descriptor Guidance (see table 17)
1 Strong All subfactors are positive.
2 Adequate All situations not covered by the three other descriptors.
3 Less than adequate The "access" subfactor is negative and neither of the other two are negative.
4 Weak The "access" subfactor is negative and one or more of the other subfactors are negative.
1. Access to sources of external capital and liquidity
158. The first financial flexibility subfactor addresses the insurer's ability to access sufficient amounts of external capital or
liquidity. The subfactor assesses two main sources of capital or liquidity, as well as other sources of financial flexibility.
The assessment is informed by five secondary metrics.
159. The subfactor is scored by assessing two main sources of capital or liquidity:
• The diversity in accessible capital markets (such as public markets for common equity, debt and hybrid instruments,
and commercial paper), as shown by the insurer's history of market access; and
• Holdings of assets with significant unrealized capital gains that could be sold to enhance liquidity without adversely
affecting asset-liability matching or future earnings prospects and are not recognized in reported capital because of
an accounting framework that uses historical cost and not fair market value.
160. Other sources of financial flexibility include:
• An insurer's ability or demonstrated willingness to obtain reinsurance from reinsurers with higher credit quality than
the insurer;
• An insurer's ability to use securitization techniques to source capital and liquidity;
• For a life insurer, the ability to adjust policyholder bonuses-dividends or crediting rates to an extent not recognized
in the capital and earnings factor; and
• For certain P/C insurers, such as marine P&I insurers, the ability to retroactively raise premiums.
161. The assessment of access to sources of external capital and liquidity considers five secondary metrics (see ¶¶164 to
169) relating to: market indicators, capital-raising track record, debt leverage, debt maturity profile, and EBITDA
interest coverage.
162. The subfactor is scored "positive" if the insurer can fully meet its future additional capital and liquidity needs from each
of at least three alternative sources.
163. The subfactor is scored "negative" if the insurer has limited sources of additional capital and liquidity, or sources with
limited or inadequate available market access available relative to needs. In all other cases, this metric is assessed as
"neutral."
164. Secondary considerations informing "Access to sources of external capital and liquidity."Market indicators include
share, hybrid, and debt prices, and observable credit spreads. Trends in an insurer's share price or credit spreads are
useful indicators of market sentiment to inform the assessment because they provide insights into the insurer's cost of
capital and ability to access cost-effective funding. Favorable trends in the market price of an issuer's equity and
moderate or narrowing credit spreads (relative to peers and in absolute terms) are supportive of the subfactor.
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Materially adverse trends in the market price of an issuer's equity and wide or widening spreads (relative to peers)
weigh on the subfactor.
165. An insurer's track record in accessing the equity and debt capital markets or regularly receiving parent funding,
utilizing reinsurance or securitization, adjusting policyholder bonuses or dividends or crediting rates, or calling for
additional premiums on insurance policies already in force provides tangible evidence to support the assessment of its
ability to access capital and liquidity. It is also important to consider both its willingness and capacity to access capital
and liquidity. Even with an excellent capital-raising track record, limited current capacity drives a negative assessment.
166. The debt leverage metric indicates the insurer's capacity to issue additional debt (for the definition, see ¶94 of
"Assumptions For Quantitative Metrics Used In Rating Insurers Globally," April 14, 2011). It is adjusted for deficits on
employee postemployment obligations.
167. For insurers operating in developed markets, debt leverage of less than 15% supports the insurer's ability to access
capital and liquidity. Debt leverage approaching or exceeding 30% is detrimental. Otherwise, the criteria consider it
neutral.
168. The interest coverage metric provides an indication of the insurer's capacity to issue additional debt based on the
strength of earnings available to service its debt obligations (for the definition see ¶84 of "Assumptions For
Quantitative Metrics Used In Rating Insurers Globally," April 14, 2011).
169. For insurers operating in developed markets, interest coverage supports financial flexibility when consistently
exceeding 10x and is detrimental when consistently less than 6x. Otherwise, the criteria consider it neutral.
2. Financial leverage
170. The financial leverage subfactor addresses the degree of an insurer's indebtedness relative to its total capitalization. It
is proposed as a key metric, instead of debt leverage, because it includes hybrid instruments and is therefore a broader
measure of balance sheet leverage, and because it is more comparable globally. Regulatory differences across markets
encourage different capital structures that may distort comparisons of debt leverage.
171. Financial leverage is measured as defined in ¶96 of "Assumptions For Quantitative Metrics Used In Rating Insurers
Globally," April 14, 2011, and scored "positive," "neutral," or "negative."
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172. A financial leverage ratio consistently less than 20% is scored "positive" for an insurer operating primarily in developed
insurance markets.
173. A financial leverage ratio consistently more than 40% is typically scored "negative" for an insurer operating primarily
in developed insurance markets. If it is 40%-50% and if debt leverage is less than 25%, the subfactor is scored
"neutral." If financial leverage is 20%-40%, the subfactor is also scored "neutral."
174. The ratio cutoff points in the two previous paragraphs are reduced (indicating a more conservative leverage) to reflect
an insurer's unfavorable debt maturity profile or ratio of intangibles to equity (see next two paragraphs), two features
the financial leverage ratio does not address. An unfavorable debt maturity profile and an unfavorable ratio of
intangibles to equity each reduce the ratios by approximately 5 percentage points. A very unfavorable ratio of
intangibles to equity reduces the cutoff points by approximately 10 percentage points. For example, the score is
"positive," despite an unfavorable debt maturity profile and a 70% ratio of intangibles to equity if financial leverage is
less than 10% (20% minus 5 points minus 5 points).
175. The debt maturity profile is unfavorable if several significant maturities are concentrated in the near to medium term.
In this analysis, debt maturities include hybrid securities with simultaneous call and step-ups, because we typically
expect the issuer to then call the instruments. Unless unfavorable, the debt maturity profile is neutral.
176. The ratio of intangibles to shareholders' equity (intangibles ratio) addresses the quality of an insurer's equity.
Intangibles exceeding half of equity are typically consistent with an unfavorable assessment, and intangibles exceeding
equity are typically consistent with a very unfavorable assessment. For the purpose of this subfactor, intangibles are
defined as the sum of goodwill, intangible assets, deferred acquisition costs (DAC), value of in-force, value of business
acquired, and deferred tax assets (as reported on the primary and any supplementary financial statements used to
calculate financial leverage). Unless unfavorable or very unfavorable, the intangibles ratio is neutral.
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3. Fixed-charge coverage
177. The fixed-charge coverage subfactor addresses an insurer's ability to service interest on financial obligations out of
EBITDA. The proposed criteria view it as a key metric, replacing interest coverage, for the same reasons as the criteria
prefer financial leverage over debt leverage. Fixed-charge cover is as defined by ¶88 of "Assumptions For Quantitative
Metrics Used In Rating Insurers Globally," April 14, 2011.
178. A fixed-charge coverage consistently exceeding 8x is scored "positive." A fixed-charge coverage unlikely to
consistently exceed 4x is scored "negative." Otherwise, the score is "neutral."
E. Modifiers And Caps To The Indicative SACP Or GCP
179. The proposed criteria establish four additional factors that are not specific to the business risk or financial risk profiles:
• The insurer's ERM and management score modifies or caps the anchor according to table 20 to produce the
indicative SACP or GCP (see section E1).
• The insurer's liquidity score is scored from '1' ("exceptional") to '5' ("weak"). A score of '1', '2,' or '3' does not affect
the SACP, GCP, or ratings, but a score of '4' caps each at 'bb+' or 'BB+', and a score of '5' caps each at 'b-' or 'B-'
(see section E2).
• The insurer's fixed-charge coverage can constrain the SACP, GCP, or ratings, and is scored according to table 26
(see section E3).
• The relevant sovereign ratings and T&C assessments are usually a cap, unless an insurer meets certain conditions
(see section E4).
180. These caps and modifiers apply cumulatively. For example, an 'aa' anchor combines with a '3' ERM and management
score to produce an 'a+' indicative GCP. The group's core operating companies are then rated 'A+' if the three other
tests in this section are met. Conversely, the ratings are capped at 'A' if the fixed-charge cover is only 2.5x; 'BB+' if, in
addition, liquidity is scored "less than adequate;" and 'BB' if a 'BB' sovereign cap applies.
181. Liquidity falls outside the analysis of the business risk and financial risk profiles. An insurer with weak liquidity is
considered more likely to default than an identical insurer with stronger liquidity. Even if an insurer's creditworthiness
is otherwise consistent with an investment-grade rating, it may fall abruptly under extreme stress if liquidity is "less
than adequate" or "weak." This could compromise the insurer's ability to pay claims, despite its other strengths. For
that reason, the assessment is absolute and not relative to peers or insurers in the same rating category.
182. On the other hand, the proposed criteria do not uplift the SACP or GCP for strong liquidity because it does not
enhance an insurer's overall creditworthiness. The criteria assess other rating factors, which may support strong
liquidity, when establishing the anchor.
E1. ERM And Management Score
183. The proposed criteria combine the two categories of ERM and management and corporate strategy into a single score
from '1' to '5', from "very strong" to "weak." The "importance of ERM" is also scored as "high" or "low," depending on
whether an insurer is exposed to complex risks that could cause it significant loss of capital or earnings in a short
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period of time (such as catastrophe risk or high-risk investment exposures) or one that is highly uncertain and usually
long term in nature (such as long-tail casualty lines of business). Where the importance of ERM is considered "low," the
management and corporate strategy subfactor is the primary factor.
184. The ERM subfactor examines whether risk management practices are executed in a systematic, consistent, and
strategic manner that provides for the control of losses within an optimal risk-reward framework. ERM analysis allows
for a prospective view of the insurer's risk profile and capital needs.
185. The management and corporate strategy subfactor addresses how management's strategic competence, operational
effectiveness, financial management, and governance practices shape the insurer's competitiveness in the marketplace,
the strength of its financial risk management and the robustness of its governance. Stronger management of important
strategic and financial risks may enhance creditworthiness. Weak management, with a flawed operating strategy or an
inability to execute its business plan effectively, substantially increases an insurer's credit risk (see "Request For
Comment: Management And Governance Credit Factors," published March 12, 2012).
Table 20
Indicative SACP Or GCP Assessment
ERM and management score (from table 21)
Anchor (from table 1) 1 2 3 4 5
aa+ aaa aa+ aa- a+ bb
aa aa+ aa a+ a bb
aa- aa aa- a+ a bb
a+ aa- a+ a+ a- bb
a a+ a a a- bb
a- a a- a- bbb+ bb
bbb+ a- bbb+ bbb+ bbb bb
bbb bbb+ bbb bbb bbb- bb
bbb- bbb bbb- bbb- bb+ bb
bb+ bbb- bb+ bb+ bb b+
bb bb+ bb bb bb- b
bb- bb bb- bb- b+ b
b+ bb- b+ b+ b b-
b b+ b b b- b-
b- b b- b- b- b-
Note: The indicative SACP or GCP is also subject to ¶21. ERM--Enterprise risk management. GCP--Group credit profile. SACP--Stand-alone
credit profile.
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1. Enterprise risk management
186. The proposed criteria score an insurer's enterprise risk management on a scale of '1' to '5', from "very strong" to
"weak," (see table 22) as the result of the assessment of five subfactors:
• Risk management culture,
• Risk controls,
• Emerging risk management,
• Risk models, and
• Strategic risk management.
187. All else being equal, an insurer with a higher ERM score, for example one that operates a more-advanced ERM
framework effectively is less likely to experience losses outside its predetermined risk tolerances. These are assessed
by the management and corporate strategy factor. The group's ERM score is assigned to group members that are
"core," "highly strategic," or "strategically important" and are well integrated into the group's ERM processes, such that
their processes are virtually indistinguishable. For all other group members, ERM is scored from a stand-alone
perspective.
Table 22
ERM Assessment
Score Assessment Guidance
1 Very strong All subfactors are scored positive.
2 Strong The risk management culture, risk controls, and strategic risk management subfactors are scored positive; one
or both of the other two subfactors is scored neutral; and no subfactor is scored negative.
3 Adequate with strong
risk controls
The risk controls subfactor is scored positive, risk management culture or strategic risk management is scored
neutral, and no subfactor is scored negative.
4 Adequate The risk controls subfactor is scored neutral, and the risk management culture and strategic risk management
subfactors are both scored positive or neutral.
5 Weak The risk controls or risk management culture subfactor is scored negative.
ERM--Enterprise risk management.
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Table 23
Proposed Scoring Metrics For Enterprise Risk Management (ERM)
Positive Neutral Negative
Risk management
culture (see ¶¶188
to 190)
ERM is well established in the organisation
with a strong governance structure that
addresses all key risks. There is a clear vision
of the enterprise's risk profile. Risk limits are
aligned with overall risk tolerances. The risk
tolerance adopted by the board is clearly
communicated internally and externally, and is
translated into risk limits.
Risk tolerances are less clearly defined
and communicated. Risk limits are
simplistic or do not align with overall risk
tolerances. The governance structure
covers most key risks but may have
limited or infrequent access to the board.
Key risks are managed on an individual
basis but may lack enterprise oversight.
ERM is not practiced, or is
practiced inconsistently, across
the enterprise. Risk limits and
monitoring do not exist or are
very basic and lack alignment
with overall risk tolerances.
Risk controls (see
¶191 and 192)
Risks are clearly identified from multiple
sources with multiple metrics. Effective
processes exist for frequent monitoring, limit
enforcement, and clear remediation action
steps. Analysis demonstrates a consistent
pattern of effectiveness.
Not all significant risk exposures are
identified. There is a limited metric
framework for measuring control
effectiveness. The framework is
generally effective, but limit enforcement
policy is less formal or inconsistent than
for insurers scored positive.
Key risk exposures are not
consistently identified or
monitored. There is no metric
framework for measuring
effectiveness or it is not
generally consistent; there is no
policy for limit enforcement.
Emerging risk
management (see
¶¶193 and 194)
The insurer has well-established processes
with a robust track record of anticipating
emerging risks, envisioning their significance
and preparing for or mitigating them.
Some processes exist for anticipating
emerging risks and envisioning their
significance. Generally ERM is limited to
identification, lacking processes for
mitigation.
The insurer lacks processes for
evaluating emerging risks.
Risk models (see
¶¶195 and 196)
The insurer demonstrates an established use
of economic capital models, demonstrating an
enterprise view. Risk models are used
extensively for individual risks across the
enterprise and have evolved over time
responding to new research and technological
capabilities, resulting in state of the art
models. Comprehensive validation and
sensitivity analyses of all models take place.
Risk models are fairly sophisticated and
cover most material risks.
Comprehensive validation and sensitivity
analyses of all models take place.
The insurer makes little use of
risk models or where it uses
them, applies limited validation
and sensitivity analysis.
Strategic risk
management (see
¶¶197 and 198)
The insurer optimizes risk-adjusted returns
across the enterprise and all of its material
risks using economic value metrics,
consistently applied and with a good track
record. ECM significantly influences capital
management and allocation, pricing,
performance management, management
incentives, and external reporting.
Capital management uses an allocated
version of the regulatory or rating
agency capital. The insurer uses generic
capital formulas instead of a full ECM
that reflects an insurer's risks; or the
insurer has a limited track record in
applying ECM across the enterprise.
The insurer does not optimize of
risk-adjusted returns. Capital
management activity is only
concentrated on maintaining
capital levels that are acceptable
on a regulatory basis or rating
agency's capital adequacy basis.
ECM--Economic capital management.
188. Risk management culture. The risk management culture subfactor addresses the importance accorded to risk and ERM
in all key aspects of an insurer's corporate decision-making. The analysis assesses the insurer's attitude toward risk,
especially its risk appetite framework, risk governance and organizational structure, risk communications and
reporting, and the embedding of risk metrics in its compensation structure.
189. Supporting evidence typically includes elements such as the presence of an independent ERM function led by an
experienced executive, commonly a chief risk officer; a risk profile that is thoroughly understood and
well-communicated through a clear risk appetite framework and extensive risk reporting; public disclosures on ERM
practices; and a clear linkage between managers' incentive compensation and ERM metrics.
190. The risk appetite framework is one of the key elements in assessing an insurer's risk management culture. A "positive"
score is assigned where there is a robust ERM framework with a well-defined risk appetite, supported by strong buy-in
from the board of directors and business units. An effective risk appetite framework consists of risk preferences and
quantitative risk tolerances that have been translated into risk limits, cascaded down to the individual risk and
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line-of-business levels. A "neutral" score reflects that risks may be managed well individually, but not in a
comprehensive and coordinated fashion. A "negative" score implies that ERM is not generally practiced or is not
practiced consistently across the enterprise.
191. Risk controls. The second subfactor addresses the risk controls an insurer uses to manage key risks, based on its
business and risk profile. Such risks typically include credit and counterparty risk, market risk, interest rate risk,
insurance risk (including reserving risk), and operational risk. However, the analysis may extend beyond these broad
categories (for example, to merger and acquisition risks for an acquisitive insurer).
192. For each major risk category, the analysis considers components of risk control processes such as quality of risk
identification, risk monitoring, standards and limits for retained risks, procedures to manage risks within limits, and the
effectiveness of remediation when limits are breached. A "positive" score reflects comprehensiveness and a
documented history of effectiveness in each of these areas, while a "neutral" score reflects more simplistic methods.
These may lack consistency with enterprise risk tolerances, although the controls could still be effective for key risks. A
"negative" score indicates that limited risk monitoring is performed or significant weaknesses in effectiveness are
noted.
193. Emerging risk management. Emerging risk management analyzes how the insurer addresses risks that are not a current
threat to creditworthiness, but could become a threat in the future. In addition, it assesses the company's level of
preparedness if those emerging risks materialize. Such risks could derive from areas such as regulation, the physical
environment, the macroeconomic environment, and medical developments.
194. The subfactor is scored "positive" if specific evidence such as internal reports and documentation shows that an
insurer has well-established processes to consistently identify, assess, monitor, and potentially mitigate identified
emerging risks. A "neutral" score indicates that some processes exist, but the insurer may lack processes for mitigation
or measurement. A lack of a formal process to identify emerging risks would result in a "negative" score.
195. Risk models. The risk models subfactor assesses the robustness, consistency, and completeness of an insurer's risk
model, including, where relevant, its development and use of an economic capital model, and the processes for model
governance and validation. Additionally, the subfactor score reflects the risk measures adopted, the methodology,
data, and assumptions; the incorporation of risk mitigation activities in those models; the infrastructure to support
them; and evidence that their results and limitations are well-communicated and understood by the risk managers and
senior management. The analysis is more qualitative than the criteria for assessing an insurer's economic capital model
(see "A New Level Of Enterprise Risk Management Analysis: Methodology For Assessing Insurers' Economic Capital
Models," published on Jan. 24, 2011).
196. The subfactor is scored "positive" if the insurer's risk model system can perform comprehensive stochastic analysis and
deterministic stress scenario analysis, and model results are used in guiding risk decisions. A "neutral" score would
indicate effective use of models for material risks, but less comprehensive or robust use in risk decisions. A "negative"
score would indicate limited use of models or limited model validation.
197. Strategic risk management. The strategic risk management subfactor assesses an insurer's rationale and processes for
optimizing risk-adjusted returns, and for evaluating and prioritizing strategic options to accomplish this. The subfactor
considers evidence and examples of situations where the insurer has made strategic decisions using economic
risk-reward metrics that are consistent with its risk appetite, while balancing other concerns, including regulatory and
accounting considerations.
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198. The score is "positive" if the company demonstrates effective use of risk-reward metrics in strategic planning, product
pricing and repricing, its reinsurance strategy, new strategic initiatives (including mergers and acquisitions, entry into
new markets, etc.), capital or economic capital budgeting, optimization of risk-adjusted returns, and incentive
compensation. A "neutral" score indicates a more-basic approach to risk-reward optimization, based on
more-simplistic capital metrics or use of an economic capital model (ECM) with a more limited track record. The score
is "negative" where capital management is very basic and no clear risk-reward optimization approach exists.
2. Management and corporate strategy
199. This RFC is consistent with the proposed criteria in "Request For Comment: Management And Governance Credit
Factors," published March 12, 2012.
E2. Liquidity
200. The liquidity analysis centers on an insurer's ability to cover its liquidity needs, both on an ongoing basis and in
moderately stressful market and economic conditions. The analysis is absolute, rather than relative to peers.
201. The proposed criteria assess an insurer's liquidity on a scale of '1' to '5', where '1' is the strongest, according to table
25. "Adequate" liquidity is rating-neutral at all rating levels; the insurer is able and prepared to cover its liquidity needs
so as to survive under moderately stressful conditions for 12 months without any refinancing. "Strong" and
"exceptional" liquidity, by definition, exceed the norm. The benchmarks to achieve such levels are correspondingly
higher and suggest an ability to weather more stressful scenarios.
202. An insurer's liquidity score results from the assessment of four subfactors, each scored as "positive," "neutral," or
"negative," according to table 24:
• Coverage of the insurer's confidence-sensitive liabilities;
• The possibility that the insurer would need to post collateral;
• The implications of covenants and ratings triggers in the insurer's financial arrangements; and
• The insurer's liquidity ratio.
Table 24
Liquidity Subfactor Scoring
Subfactor Positive Neutral Negative
Coverage of
confidence-sensitive
liability (¶¶206 to 210)
Confidence-sensitive liabilities are
either non-existent or covered 1.2x or
more by the sum of liquid assets and
back-up credit facilities not terminated
by a one rating category downgrade.
Confidence-sensitive liabilities are
covered approximately 1.2x, or
more, by the sum of liquid assets and
back-up credit facilities not
terminated by a two rating category
downgrade.
Confidence-sensitive liabilities are
covered clearly less than 1.2x by the
sum of liquid assets and back-up
credit facilities not terminated by a
two rating category downgrade.
Collateral posting risk
(¶¶211 and 212)
Notional exposure to insurance or
other contracts where collateral
posting is contingently required,
assuming a two rating category
downgrade or other equivalent
triggers, is nonexistent or less than
15% of liquid assets.
Notional exposure to insurance or
other contracts where collateral
posting is contingently required,
assuming a two rating category
downgrade or other equivalent
triggers, is within 15%-30% of liquid
assets.
Notional exposure to insurance or
other contracts where collateral
posting is contingently required,
assuming a two rating category
downgrade or other equivalent
triggers, is more than 30% of liquid
assets.
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Table 24
Liquidity Subfactor Scoring (cont.)
Covenants and ratings
triggers (¶¶213 to 216)
No financial-ratio covenant nor rating
triggers on material facilities. Or, if
any, balance sheet and income
statement ratios are in excess of 2.0
times (x) covenant requirements. And
no material adverse change (MAC)
clauses or rating triggers that could
result in cancellation of existing
facilities. Not at risk to non-economic
deterioration in financial metrics
linked to covenants due to accounting
requirements.
On material facilities, balance sheet
ratios are 1.2x-2.0x, and income
statement ratios 1.5x-2.0x in excess
of covenant requirements. No
material adverse change (MAC)
clauses or rating triggers that could
result in cancellation of existing
facilities. Not at risk to
non-economic deterioration in
financial metrics linked to covenants
due to accounting requirements.
On material facilities, at least one
balance sheet ratios is less than 1.2x,
or at least one income statement ratio
is less than 1.5x, in excess of
covenant requirements. Covenants or
triggers are present that if violated
would result in liquidity strain or
cancellation of existing facilities.
Potentially at risk to non-economic
deterioration in financial metrics
linked to covenants due to accounting
requirements.
Liquidity ratio (¶¶217 to
223)
The insurer's liquidity ratio exceeds
2.2x.
The insurer's liquidity ratio stands
between 1x (P/C) or 1.4x (life) and
2.2x (for both).
The insurer's liquidity ratio is less
than 1.0x (P/C) or 1.4x (life).
All assessments in this table are forward-looking over the next 12 months.
Table 25
Liquidity Assessment
Score Assessment Guidance (see table 24)
1 Exceptional All four subfactors are positive or three are, and the fourth one is neutral.*
2 Strong Two subfactors are positive and two are neutral.*
3 Adequate All four subfactors are neutral or three are, and the fourth one is positive.*
4 Less than adequate One or two subfactors are negative.*
5 Weak Three or all four subfactors are negative or any one subfactor poses a severe risk to the
insurer's liquidity.
*And no subfactor poses a severe risk to the insurer. For the purpose of the liquidity test, "severe risk" designates an appreciable likelihood that,
incorporating a significant but not extreme downside to the insurer's performance expectations under Standard & Poor's base case, one of the
four factors renders the issuer unable to entirely and timely service all its financial and policyholder obligations over the next 12 months.
Examples include: debt maturities over the next 12 months that are difficult to refinance due to stressed market conditions; and substantial
collateral posting requirements related to credit default swaps or other derivative contracts.
203. When assessing the liquidity factor to assign a GCP, the analysis is based on a consolidated view including the holding
company (to assess the liquidity of a nonoperating holding company, see ¶¶249 to 252). Where consolidated data are
not available, the analysis includes aggregating operating companies. This analysis excludes insulated subsidiaries.
When assessing the liquidity factor to assign an SACP to a specific insurance company, the analysis is restricted to that
company, including its subsidiaries, if any. Within a given insurance group, the liquidity scores for the GCP and the
various SACPs are capped at "adequate" when the holding company's liquidity is "less than adequate," and at "less than
adequate" when it is "weak."
204. The liquidity subfactors consider regulatory or other provisions that may restrict the flow of cash and liquid assets
among legal entities, up to the holding company as well as among operating companies, within the rated group. For
example, U.S. regulation restricts stockholder dividends by U.S. insurance operating companies. We consider the effect
such restrictions may have on a group's ability to meet its liquidity needs in the specific legal entities where they arise.
Under the U.S. rules, cash and liquid assets in an insurance operating company may not be available to its holding
company to pay maturing commercial paper or to meet the obligations of other insurance operating companies within
the group. Where such limitations exist, the subfactors consider only the sources of liquidity available to the legal
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entities.
205. The analysis is based on the following liquidity assumptions and considerations:
• The ratio cutoffs reflect the historical experience of insurers' liquidity stresses as well as the factors mentioned in
¶¶11 to 17.
• An insurer experiences immediate and unforeseen stress from withdrawals and surrenders over the next 12 months.
• Refinancing is unavailable for 12 months, i.e., the insurer is assumed not to have any access to market or bank debt,
equity, or hybrid instrument refinancing over this period.
• The insurer's maturities beyond 12 months are manageable; if they are not, the liquidity score is capped at
"adequate."
• For the definition of "liquid assets," see ¶79 in "Assumptions For Quantitative Metrics Used In Rating Insurers
Globally," April 14, 2011, except for the purpose of applying the U.S. and Canada life operating company liquidity
model.
• Backup facilities include only committed credit facilities for general financing with a maturity sufficient to cover
liquidity needs (e.g., for liquidity requirements arising in the next 12 months, the credit facilities do not mature
within 12 months) and only those provided by banks rated investment grade. When analyzing requirements,
including amounts drawn, the entire size of the facility is included as a resource. Alternatively, the analysis can
ignore the amounts drawn, but will then consider as a liquidity resource only the facility's undrawn amount.
• The analysis of an insurer's exposure to rating triggers, collateral posting, and ratio-driven covenants is restricted to
instruments and facilities that are material and represent borrowings to third parties, not group affiliates. If not
material, instruments and facilities do not contribute meaningfully to liquidity resources. If drawn and accelerated,
they can easily be repaid to avoid cross-defaults with larger instruments and facilities.
• The level of ratio-based covenants is that calculated from the insurer's most recent financial statements.
1. Confidence-sensitive liability coverage
206. The first liquidity subfactor assesses the risk of a sudden call on the insurer's cash in the event of a loss of confidence
specific to the insurer or a general loss of market confidence.
207. The subfactor is scored "positive" when the insurer has no or insignificant confidence-sensitive liability. It is also
positive when the sum of liquid assets and of backup credit facilities not subject to termination in the event of a
three-notch downgrade is at least 120% of confidence-sensitive liabilities.
208. The subfactor, when not scored positive, is scored "neutral" when the sum of liquid assets and backup credit facilities
not subject to termination in the event of a six-notch downgrade is at least 120% of confidence-sensitive liabilities.
209. The subfactor is scored "negative" in all other cases.
210. Confidence-sensitive liabilities include commercial paper issuance; long-term financial obligations maturing within 12
months; hybrid instruments callable within 12 months; and institutional insurance products, including funding
agreements and guaranteed investment contracts (GICs), containing put provisions of up to 365 days or less.
2. Collateral-posting risk
211. The second liquidity subfactor assesses an insurer's exposure, for example through certain debt contracts, reinsurance
treaties, and derivatives contracts, to collateral posting requirements in the event of ratings downgrades or other
triggers, relative to liquid assets.
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212. The subfactor is scored "positive" when an insurer has no significant confidence-sensitive liability. It is also positive
when the value of the assets it would have to post as collateral in the event of a downgrade of up to six notches or
equivalent triggers is less than 15% of liquid assets. The subfactor is scored "neutral" when it would have to post
15%-30% of liquid assets, and "negative" if it would have to post 30% or more.
3. Covenants and ratings triggers
213. The third liquidity subfactor assesses the risk to an insurer's liquidity of not complying with covenants and rating
triggers on its third-party financial obligations. The impact of an ensuing termination of debt or credit facilities is a
function of the likelihood that the creditor effectively terminates the facility and of the severity of the resulting impact
on the insurer's liquidity needs and resources. Examples of such covenants include minimum levels of shareholder
equity or statutory capital, or interest coverage by earnings. "Covenant requirement" refers to the most stringent level
that, if breached, is defined as an event of default under the documentation.
214. The subfactor is scored "positive" for insurers that meet the same requirements as in the previous paragraph, except
that balance sheet and income statement numerical measures exceed 2x covenant requirements.
215. The subfactor is scored "positive" for an insurer that has no numerical covenant or rating trigger. If it does, the
subfactor is "neutral" if the insurer meets all of the following three conditions:
• The insurer's income statement measures are between 1.5x and 2.0x covenant requirements, and balance sheet
measures are between 1.2x and 2.0x covenant requirements.
• There are no particularly broadly or loosely worded material adverse change (MAC) clauses, or rating triggers
within six notches of the current rating that could result in the cancellation of sizable facilities.
• The insurer is not at risk, over the next 12 months, of a breach of covenants because of a noneconomic
deterioration in financial metrics primarily triggered by a change in accounting standards.
216. The subfactor is scored "negative" if any of the following applies:
• One or more income statement measures is less than 1.5x covenant requirements;
• One or more balance sheet measures is less than 1.2x covenant requirements;
• Particularly broadly or loosely worded MAC clauses exist, or one or more rating trigger exists within six notches of
the current rating; or
• The insurer is at risk, within the next 12 months, of breaching one or more covenants because of a noneconomic
deterioration in financial metrics primarily triggered by a change in accounting standards.
4. An insurer's liquidity ratio
217. The fourth and last liquidity subfactor assesses an insurer's ability, over a one-year period, to convert assets to cash,
relative to the demand for its cash by policyholders and lenders. The proposed criteria use liquidity ratios to measure
that ability.
218. The subfactor is "positive" when the ratio exceeds 2.2 times (x). For a life insurer or reinsurer, the subfactor is scored
"neutral" when it is within 1.4-2.2x, and "negative" when it is less than 1.4x; for a P/C insurer or reinsurer, it is "neutral"
when it is within 1.0-2.2x, and "negative" when it is less than 1.0x; for a multiline insurer, the cutoff points are blended
according to the respective contributions of the life and P/C operations to stress insurance liabilities. The coverage is
calculated based on our forward-looking view over the next 12 months, factoring in the insurer's liquidity management
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and our cash flow expectations.
219. Given the differences in the characteristic of life versus P/C insurers and the different ways that insurance companies
disclose data, the calculation of the liquidity ratio varies.
220. For U.S. and Canadian life insurance operating companies, the ratio is defined as the outcome of Standard & Poor's
liquidity model (see "Criteria | Insurance | Life: Liquidity," published on April 22, 2004). The model measures the
insurer's liquidity under two scenarios, immediate and ongoing stress, as the ratio of allowable assets divided by
adjusted potential and maturing obligations. Under the proposed criteria, the insurer's liquidity ratio is the lower of the
two ratios.
221. For all other insurers, the liquidity ratio addresses the extent to which the company could cover its stressed insurance
liabilities outflows, defined in the following two paragraphs, with stressed liquid assets, which are liquid assets net of
risk charges. These charges are 50% for listed equities, 10% for investment-grade bonds, 35% for bonds rated in the
'BB' and 'B' categories, 1% for deposits with banks rated above 'BBB-', and 5% for deposits with banks rated 'BB+' and
below. Most other asset classes have a 100% charge including loans, private equity and hedge funds, property assets,
and premium receivables. However, when material, certain entity-specific assets may be included provided that the
insurers can demonstrate that it is possible to convert them promptly into cash. The applicable charge would be one of
the above based on a review of its specific liquidity characteristics.
222. For P/C insurers, stressed claims outflows factor in stressed claims reserves on claims reserve duration. The liquidity
ratio is defined as:
• Stressed liquid assets/[(net claims reserves + net reserve risk charge)/duration) + net catastrophe charge + net
premium charge].
• The claims reserves duration reflects the "tail" of the business underwritten. This assessment reflects the insurer's
mean term of claim of liabilities, as referred to in the capital adequacy model criteria (see ¶52).
• Stress claims outflows include the impact of the property catastrophe risk charge and the P/C reserve and premium
risk charges from the capital adequacy model.
223. For life insurers outside North America, stressed claims outflows factor in abnormally high lapse levels. The liquidity
ratio is defined as stressed liquid assets divided by 35% of the sum of lapsable and transferable life liabilities. Linked
business is excluded and assessed separately based on the liquidity of underlying assets. Based on global experience,
the proposed criteria refer to an abnormally high lapse level as 35% of lapsable and transferable life liabilities.
Examples of such liabilities include all continental Europe participating business, annuity liabilities, and with-profit
liabilities.
E3. Fixed-Charge Cover Test
224. An insurer needs to meet a minimum level of coverage for each SACP or GCP category (see table 26). For example, if
the cover expectation is 4x, the SACP or GCP is capped at 'aa-'; 'aa' would require 5x or more.
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Table 26
Fixed-Charge Coverage Test Of SACP And GCPs
SACP or GCP Minimum EBITDA/fixed-charge coverage
aaa 8 times (x)
aa 5x
a 3x
bbb 2x
bb 1.5x
GCP--Group credit profile. SACP--Stand-alone credit profile.
E4. Rating An Insurer Above The Sovereign Rating Or T&C Assessment
225. The proposed criteria may, in rare instances, result in an SACP or GCP--and potentially a rating--on a domestic
unsupported insurer that is one to two notches above the local currency rating on the sovereign in whose jurisdiction
the company has most of its business (see "Factoring Country Risk Into Insurer Financial Strength Ratings," published
Feb. 11, 2003). In these cases, the proposed criteria typically subjects the SACP or GCP that results from sections A
through E3 to the test in ¶228. In rating an insurer above the sovereign, Standard & Poor's is expressing its view that
the company's willingness and ability to service debt is superior to the sovereign's and that, ultimately, if the sovereign
defaults, there is a measurable probability that the insurance company will not default.
226. If an insurer derives less than 10% of both its assets and policyholder liabilities from a jurisdiction, including that of its
domicile (for example, certain Ireland-, Bermuda- or Cayman Island-based insurers), its ratings are neither capped nor
directly linked to the sovereign rating on that jurisdiction.
227. If the insurer is based in the European Economic and Monetary Union (EMU), the criteria in "Nonsovereign Ratings
That Exceed EMU Sovereign Ratings: Methodology And Assumptions," published on June 14, 2011, continue to apply.
228. In all other cases, the following test applies. The local currency ratings on a domestic unsupported insurer could
exceed the sovereign foreign currency rating level, by up to two notches only in rare circumstances, where insurer's
specific strengths, beyond the general country risks factored in IICRA, sufficiently offset the following three types of
risks:
• Asset risk, given not only the typically very high proportion of government securities on insurers' balance sheets,
but also the impact of sovereign, and often macroeconomic, stress on real estate and corporate equity and debt
values;
• Regulatory risk, because in our historical experience, including in Argentina in 2001-2003, regulatory frameworks
and surveillance may well become significantly credit-negative as a sovereign undergoes credit stress and most
insurers, including members of nondomestically owned groups, are subject to local regulations; and
• Potential direct government intervention, mandated changes in the contractual terms of debt or insurance
obligations, or by other means, for example, in response to an economic crisis associated with sovereign credit
distress.
229. In addition, the government local currency rating typically caps the ICR and FSR on a domestic unsupported insurer.
The insurer's foreign currency rating (whether FSR or ICR) is the lower of its local currency rating and the relevant
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T&C assessment. While FSRs only address policyholder obligations and T&C assessments refer to debt service, the
proposed criteria equalize the risk that a sovereign would apply restrictions on the availability of foreign exchange to
service debt with the risk that the sovereign would apply restrictions on the availability of foreign exchange to service
policyholder obligations.
230. For the purpose of this section, "domestic" refers to an insurer where most (typically 70% or more) of its assets or
policyholder obligations, whichever proportion is higher, stem from a given jurisdiction or its jurisdiction of domicile.
"Unsupported" means that the insurer is not guaranteed by, nor "core" or "highly strategic" to, a nondomestic group.
231. The ratings on a domestic insurer that is guaranteed by, or a branch of, a rated nondomestic parent or affiliate, are the
lower of the latter's ratings and the level six notches above the local currency rating, if investment grade (four if
speculative grade), of the sovereign where the domestic insurer is domiciled. Generally, senior group management
would have demonstrated a strong commitment, including a track record of support in good times as well as bad, for
the subsidiary or branch.
232. For insurers that are not based in the EMU and do not meet the conditions in ¶¶226 or 230, the assessment looks at
the blended exposure of T&C, sovereign, and country risk levels.
F. Support Framework
233. The proposed criteria base the ICRs of members of insurance groups, both operating and holding companies, on the
following:
• For an insurance operating company: its group status; its SACP, according to sections A to E above; and the GCP.
• For a nonoperating insurance holding company (NOHC): the GCP and certain factors that drive the differential
between the GCP and the holding company's ICR. A NOHC is defined as a company that does not conduct material
insurance operations itself but is the ultimate or an intermediate group owner whose unconsolidated assets
predominantly (generally more than 90%) comprise investments in, or amounts due from, its subsidiaries.
• For an operating holding company: the GCP, notched down to the extent that its holding company activities
outweigh its operating company activities.
• For a noninsurance operating company: its group status, its SACP assigned according to the relevant criteria for its
type (bank, other financial institution, or corporate), and the GCP.
• If the insurer is a GRE, its SACP incorporates the ongoing aspects of the relationship with the related government;
its GCP incorporates our expectations of potential extraordinary government support or negative intervention
should the insurer come under stress.
234. The FSR on an insurance operating company is set at the same level as the ICR on the company except:
• To reflect explicit support for policyholder obligations (a guarantee or net-worth maintenance agreement, see
¶¶242 to 245). Since the support does not extend to debtholders, the FSR may be enhanced by such support,
whereas the ICR is not.
• When ratings are in the 'B' category or below, where the ability and willingness to service debt may differ from the
ability and willingness to service policyholder obligations, the gap between the two ratings may span several
notches.
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F1. Rating Insurance Subsidiaries Of Insurance Groups
1. Section applicable to all members of insurance groups
235. The proposed criteria base the rating of an insurance group's subsidiary on the Methodology section (Section III) of
"Group Rating Methodology And Assumptions," published Nov. 9, 2011 (the GRM criteria), and the insurance-specific
criteria in this section. That methodology explains how we define a group, derive a GCP, assess the group status of
each rated group member, and how the subsidiary's rating is derived from the combination of the GCP, its group status
and, when the latter is "strategically important" or of lesser importance, its SACP (see chart 2, where the paragraph
numbers refer to this RFC).
236. Supplementing ¶28 of the GRM criteria, for "core" and "highly strategic" subsidiaries of insurance groups, other than
captive insurers, "commensurate capitalization" refers to a capitalization that is in line with group policies and
practices for key subsidiaries and stands significantly above the MCR.
237. Supplementing ¶27 of the GRM criteria, for "core," "highly strategic," and "strategically important" subsidiaries of
insurance groups, other than captive insurers, a "significant proportion" refers to at least 5% of both capital and
consolidated operating earnings. For the purpose of this analysis, "capital" is measured by TAC and "operating
earnings" by "adjusted EBIT" (see "Assumptions For Quantitative Metrics Used In Rating Insurers Globally," April 14,
2011, ¶31). The metrics take into account current figures and projections for the next two years based on the recent
track record.
238. Supplementing ¶30 of the GRM criteria, for insurance groups, a group subsidiary that is not a captive insurer is "highly
strategic" if it meets all "core" characteristics except for "either constitutes a significant proportion of the consolidated
group or are fully integrated with the group."
239. Supplementing ¶¶27 to 31 of the GRM criteria, an insurance group's subsidiary is not considered "core," "highly
strategic," or "strategically important" if there is any possibility of it being placed into run-off. However, this does not
apply to subsidiaries whose operations could be transferred to other core, highly strategic, or strategically important
subsidiaries, as long as there is no measurable credit impact on policyholder and nonpolicyholder financial obligations.
In addition, this does not apply to subsidiaries of groups that for reputation reasons will likely support a subsidiary
even in run-off, or which continue to consider as strategic the line of business to which the subsidiary contributes.
240. Supplementing ¶27 of the GRM criteria, an insurance group's newly acquired subsidiary may not usually be designated
as "core" during the first two years after the acquisition because of integration risks and the potential for new,
unanticipated risks to emerge. A subsidiary may usually be designated as core after it is fully integrated. However,
significant and sustained deterioration of operations or earnings underperformance could also cause a reclassification
of its group status to a lower category than highly strategic.
241. Section B4, ¶¶55 to 61, of the GRM criteria regarding "insulated subsidiaries" would apply to an insurance group, with
certain exceptions. In ¶60, the dividend policy is analyzed according to all publicly available information.
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2. Insurance subsidiaries as beneficiaries of policy guarantees and other support agreements
242. Where a policy guarantee agreement meets the following conditions, the FSR on the beneficiary is that of the
guarantor (unless the beneficiary's SACP is higher). These conditions mirror those for our rating substitution criteria
(see "Guarantee Default: Assessing The Impact On The Guarantor's Issuer Credit Rating," May 11, 2012), except that
the last two are specific to the proposed criteria, as is the absence of a reference to timeliness (which FSRs do not
address). Also, policyholders, not debtholders, are the beneficiaries.
• The guarantee covers all policyholder obligations and explicitly ranks them as pari passu with the guarantor's own
policyholder obligations. (A guarantee that does not cover all policyholder obligations of the guaranteed entity may
not enhance the latter's FSR at all.)
• The guarantee is of payment and not collection.
• The guarantee is unconditional, irrespective of value, genuineness, validity, or enforceability of the supported
obligations. The guarantee provides that the guarantor waives any other circumstance or condition that would
normally release a support provider from its obligations. The guarantor also should waive the right of set-off and
counterclaim.
• The guarantor's right to terminate the agreement is appropriately restricted, i.e., the support agreement does not
terminate before the supported obligations are paid in full. Alternatively, if it does, obligations incurred up to the
termination date remain supported. In addition, the support agreement must be binding on successors and assigns
of the support provider or, if it can be revoked, this only applies to policies written after the revocation date.
• The guarantee provides that it reinstates if any supported payment is recaptured as a result of the primary obligor's
or the guarantor's bankruptcy or insolvency.
• Policyholders are third-party beneficiaries of the guarantee.
• In the case of cross-border transactions, the risk of withholding tax with respect to payments by the guarantor may
need to be addressed. In addition, the guarantor typically must subject itself to jurisdiction and service of process in
the jurisdiction in which the guarantee is to be performed.
• To strengthen the guarantee's enforceability by policyholders, if it is not referenced in insurance policies, the
beneficiary insurer provides sufficient public disclosure of its existence and key features.
243. For the purpose of these criteria, "support agreements" include net-worth maintenance agreements or any other
agreement intended to provide support to subsidiary policyholders. Where a support agreement does not meet all of
the conditions in the previous ¶242, to qualify for any rating enhancement, the support agreement must meet the
following conditions in addition to those in ¶¶244 and 245:
• It gives policyholders, financial creditors, or other third-party interests, such as regulators, the ability to enforce the
agreement against the support provider, if the provider fails to perform its obligations.
• It cannot be modified or terminated to the detriment of the existing beneficiary policyholders, or creditors at the
time of termination without their agreement, unless the beneficiary subsidiary's creditworthiness becomes at least as
strong as the supported rating; or the beneficiary can be sold only to an insurer with the same or higher
creditworthiness as the support provider.
• It stipulates that the subsidiary will be prudently capitalized, for example, relative to the regulatory capital
requirement.
• It provides that the support provider will cause the beneficiary entity to have sufficient cash and liquid assets for the
timely payment of all of its debt if the agreement is to provide corporate debt support and policyholder obligations if
the agreement is to provide policy support.
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244. Where, in addition to the conditions in the previous paragraph, the beneficiary subsidiary is at least "strategically
important" to the group and the support agreement meets all of the following four conditions, the FSR on the
beneficiary (unless it has an SACP above the GCP) is the same as the rating on the support provider:
• The agreement states definitively that the provider will support the beneficiary, and sets no material cap on the
support;
• The agreement is provided by a regulated bank or insurer that is a core group member;
• The agreement is binding on successors and assigns of the support provider; and
• The beneficiary subsidiary does not demonstrate adverse performance and is not likely to be part of a corporate
restructuring. If the other four conditions above are met, but not this one, the rating on the beneficiary would be set
one notch below the GCP, unless its SACP is the same as the GCP.
245. Where in addition to the conditions in ¶243, a net-worth maintenance agreement meets both of the following
conditions, the rating on the beneficiary is raised by three notches from its SACP, subject to a cap at one notch below
the support provider's rating.
• The agreement demonstrates a current intention to support the beneficiary in the medium to long term; and
• The agreement is provided by an affiliated regulated bank or insurer.
F2. Assigning ICRs To Nonoperating Holding Companies
246. This section addresses how ICRs on NOHCs are derived from the GCP. Holding companies that meet the conditions
for core group status are operating holding companies; other holding companies are NOHCs. NOHCs are not assigned
FSRs, and GRM designations are not applied to these companies.
247. A NOHC's ICR would be determined by (1) the GCP and (2) the number of notches by which it would be differentiated
to reflect ongoing cash flow subordination between the creditors of the holding company and those of the operating
insurance subsidiaries (typically their policyholders) (see table 27).
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248. The NOHC's ICR notching relative to the GCP reflects the degree of structural subordination within insurance groups.
Structural subordination is considered very high in jurisdictions such as the U.S., where even strong companies have to
obtain prior regulatory approval before transferring significant amounts of solvency capital from an operating company
to its holding company. Structural subordination is somewhat less onerous in regions such as the EU.
249. The NOHC's liquidity assessment is a function of the first three of the four subfactors defined in section E2 and of the
ratio subfactor described in ¶252, all analyzed at the level of the unconsolidated holding company, which, in most
cases, bears most of the group's financial obligations.
250. Liquidity is scored "strong," "adequate," "less than adequate," or "weak."
251. Liquidity is scored "strong" when no subfactor is negative and at least two are positive; "less than adequate" when one
or two are negative; and "weak" when three or four are. In all other cases, it is "adequate."
252. The ratio subfactor is positive when both ratios exceed 1.5x, negative if the first one is under 1.2x and the second one
under 1.0x, and neutral otherwise.
• Liquid assets to noncontingent short-term financial liabilities, where the numerator excludes stakes in subsidiaries
and liquidity facilities, and the denominator includes liabilities with structured settlements, with no optional features.
• The holding company's ability to pay its total liquidity requirements (excluding principal servicing) out of its cash
inflows: [Dividends from operating entities + net investment revenues from holding assets] / [overhead expenses +
interest charges + other ongoing financial charges + shareholder distributions, if any].
253. The notching in table 27 is increased in the following situations:
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• When the holding company's liquidity assessment is "less than adequate" or "weak." Its ratings are then capped at
'BB+' or 'B-', respectively.
• When the holding company itself carries very significant asset or liability risks that are otherwise diluted within the
overall GCP.
F3. Assigning Issue Ratings
254. This section addresses how to assign ratings to long-term obligations that are not deferrable or mandatorily
convertible and are issued or guaranteed by insurers that are members of insurance groups.
255. Obligations with a guarantee that meets our rating substitution criteria are rated at the guarantor's level (if severally
guaranteed: at the highest of all guarantors' ratings).
256. Obligations that do not benefit from such guarantees are rated according to table 28. Even if the ICR is supported by a
parent, affiliate, or government, table 28 applies, since the ICR is weak-linked to each of these obligations in the first
place.
Table 28
Determining Issue Ratings On Nondeferrable Obligations from ICRs*†
Situation Obligation type Typical notching
Holding company, ICR is investment grade
Senior debt 0
Junior debt -1
Holding company, ICR is speculative grade‡
Senior debt 0
Junior debt -2
Operating company, ICR is investment grade
Senior debt -1§
Junior debt -1
Operating company, ICR is speculative grade‡
Senior debt -2§
Junior debt -2
*Nondeferrable also encompasses mandatory-convertible securities.
†Junior obligation notching could be one notch less in rare cases where recovery prospects would be unusually strong, for example if we expect
capitalization to remain stronger in a default scenario than our usual expectations. Senior debt could (in cases that are expected to be rare when
the ICR is 'B-' or higher) be rated one notch higher than the ICR if holders benefit from asset securities that considerably enhance recovery.
‡Except if a recovery rating is assigned, in which case the notching would reflect the recovery rating according to "Recovery Ratings On The Debt
Of Speculative-Grade Companies In The Insurance Sector," June 24, 2008.
§Reflects typical policyholder seniority over financial lenders. Notching is zero (a) in the rare jurisdictions where policyholders would not be
senior to financial lenders or (b) for very well-secured senior debt of speculative-grade companies.
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VIII. GLOSSARY
• BRP. An insurer's business risk profile.
• Capital model and capital model criteria. The capital model is a quantitative tool that is integral to Standard &
Poor's analysis of the capital adequacy of life, property/casualty, health insurance, and reinsurance companies
worldwide, as described in the criteria article "Refined Methodology and Assumptions For Analyzing Insurer Capital
Adequacy Using the Risk-Based Insurance Capital Model," published on June 7, 2010, as supplemented by "A New
Level Of Enterprise Risk Management Analysis: Methodology For Assessing Insurers' Economic Capital Models,"
Jan. 24, 2011. ¶¶27 to 30 in this article describe our use of U.S. generally accepted accounting principles (GAAP),
statutory accounts, International Financial Reporting Standards (IFRS), and local GAAP on a consolidated,
aggregated, or unconsolidated basis depending on whether we conduct the analysis on a group or subsidiary level.
The capital model derives a risk-based capital (RBC) requirement amount at four confidence levels (see ¶¶21-22).
• Coinsurance. Insurance (or reinsurance) business where insurers share the same terms and conditions as other
insurers underwriting the same risk, other than the proportion of that risk. For example, insurer A may insure 40% of
the risk, and insurers B and C may each insure 30% of the risk. In this example, the insurers would normally share
premiums, commissions, and claims in the same proportions.
• Counterparty credit rating (CCR). This is the same as issuer credit rating (ICR).
• FER or financial enhancement rating. A FER addresses an insurer's ability and willingness to meet
credit-enhancement insurance claims on a full and timely basis. See "Financial Enhancement Ratings," published
Dec. 10, 2004, and "Standard & Poor's Ratings Definitions," published June 22, 2012.
• FRP. An insurer's financial risk profile.
• FSR or financial strength rating. A Standard & Poor's 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. For organizations with cross-border or
multinational operations, including those conducted by subsidiaries or branch offices, the ratings do not take into
account potential that may exist for foreign exchange restrictions to prevent financial obligations from being met.
See "Standard & Poor's Ratings Definitions," published June 22, 2012. However, under the proposed criteria we also
would assign a foreign currency FSR when it is different than an insurer's local currency FSR. For a given insurer,
the ICR and FSR might differ when one class of the insurer's obligations is guaranteed by an entity with a different
ICR; or when the insurer is in distress or in default. Typically FSRs are not assigned to nonoperating holding
companies because they don't underwrite insurance risks.
• GCP or group credit profile. The GCP is Standard & Poor's opinion of a group's creditworthiness as if the group
were a single legal entity, and is conceptually equivalent to an ICR. A GCP does not address any specific obligation.
See "Group Rating Methodology And Assumptions," Nov. 9, 2011, ¶11.
• GRM or group rating methodology. Methodology to assess financial support within a group (see "Group Rating
Methodology And Assumptions," Nov. 9, 2011).
• Hard market. A period when premiums that insurers charge are high relative to long-term norms.
• Hybrid instruments. These securities, which include preferred shares, combine features of debt and equity, but are
not equivalent to common equity or senior debt.
• ICR or issuer credit rating. A Standard & Poor's issuer credit rating is a forward-looking opinion about an obligor's
overall creditworthiness in order to pay its financial obligations. This opinion focuses on the obligor's capacity and
willingness to meet its financial commitments as they come due. It does not apply to any specific financial
obligation, as it does not take into account the nature of and provisions of the obligation, its standing in bankruptcy
or liquidation, statutory preferences, or the legality and enforceability of the obligation. See: "Standard & Poor's
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Ratings Definitions," published June 22, 2012. Also called "counterparty credit rating." An insurer is assigned both
foreign and local currency ICRs.
• Insurance or Insurers. In these criteria, unless otherwise stated, these terms include reinsurance and reinsurers.
• Insurance group. A group of companies that have insurance as their predominant activity.
• Local currency issuer credit rating. A nonsovereign entity's local currency ICR reflects Standard & Poor's opinion of
that entity's willingness and ability to service its financial obligations, regardless of currency and in the absence of
restrictions on its access to foreign exchange needed to service debt.
• Minority interests. Also referred to as noncontrolling interests.
• New business margin. The ratio of value of new business divided by (1) the present value of new premiums or (2) if
the present value of new premiums is not available, by the sum of (i) new annual premiums and (ii) 10% of single
premiums. The value of new business is the present value of the future profits of all new policies sold during the
year.
• P/C or property/casualty.
• Premiums. For insurers reporting under U.S. generally accepted accounting principles, given that under Financial
Accounting Standards Board Statement No. 97 most annuities and universal life receipts are accounted for as
deposits and not as revenues or premiums, for the purpose of these criteria premiums are represented by sales.
• RBC or risk-based capital.
• ROTC or return on total capital. We define ROTC as (a) the sum of (i) net income and (ii) interest expense
multiplied by (1 – effective tax rate), divided by (b) the sum of reported equity, hybrid, and debt. The numerator is
the average over the period and the denominator is average between the beginning and the end of the period.
• Sigma. This refers to the study, Sigma Study: No. 3/2012, "World insurance in 2011: non-life ready for take-off."
• Soft markets. These are periods when premiums charged are believed to be low relative to long-term norms.
• Solvency margin. This is the amount by which an insurance company's assets exceeds its projected liabilities,
effectively a measure of its financial health.
• TAC or total adjusted capital. TAC is the measure Standard & Poor's uses to define the capital available to meet a
company's capital requirements in our capital adequacy model, as derived from our capital adequacy model
("Refined Methodology and Assumptions For Analyzing Insurer Capital Adequacy Using the Risk-Based Insurance
Capital Model," June 7, 2010, table 1.)
• T&C: Transfer and convertibility, as defined in "Criteria For Determining Transfer And Convertibility Assessments,"
published May 18, 2009. A T&C assessment is the rating associated with the likelihood of the sovereign restricting
access to foreign exchange needed for debt service.
• Tied (otherwise known as exclusive) agents and non-tied agents. Tied agents are those that are contractually bound
to distribute the products of only one insurer. They may not be controlled by the insurer, but they are significantly
influenced by the insurer because of the exclusivity of the relationship. For the purpose of these proposed criteria,
the agent may be tied to different insurers for different products but these products must not be substitutes for each
other. For example, if the agent's customer requires home insurance or term life insurance, it may only offer the
product of one insurer in each case. Non-tied agents are all other agents.
IX. RELATED CRITERIA AND RESEARCH
Related but would not be superseded, even in part
• Principles Of Credit Ratings, Feb. 16, 2011
• Standard & Poor's Ratings Definitions, June 22, 2012
• Credit Stability Criteria, May 3, 2010
• Understanding Standard & Poor's Rating Definitions, June 3, 2009
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• Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
• Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011.
• Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
• Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
• How Standard & Poor's Uses Its 'CCC' Rating, Dec. 12, 2008.
• Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance
Capital Model, June 7, 2010.
• Life: Liquidity, April 22, 2004.
• A New Level Of Enterprise Risk Management Analysis: Methodology For Assessing Insurers' Economic Capital
Models, Jan. 24, 2011.
• Assumptions for Quantitative Metrics Used in Rating Insurers Globally, April 14, 2011.
Would be partly superseded
• Group Rating Methodology And Assumptions, Nov. 9, 2011.
• Holding Company Analysis, June 11, 2009.
• Factoring Country Risk Into Insurer Financial Strength Ratings, Feb. 11, 2003.
Group Methodology, April 22, 2009.
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