2018 Methodology Review Seminar

etc.venues St.Paul’s, London

6 November 2018

Agenda: 2018 Methodology Review Seminar

2

14:25 Welcome & IntroductionGreg Carter, Managing Director, Analytics –EMEA

14:30 Best’s Credit Rating Methodology (BCRM) –Reviewing the Building Block ApproachMahesh Mistry, Senior Director, Analytics

15:00 Revised Best’s Credit Rating Methodology (BCRM) in Action: Mock Rating CommitteeCatherine Thomas, Committee Chair, Senior Director, AnalyticsMichael Dunckley, Lead Analyst, Associate Director, Analytics

15:45 Q&A: Interactive Discussion

16:15 Close

Disclaimer© AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTEDBY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHERTRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANYSUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUTAMB’s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable.Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS”without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or inpart caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the controlof AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation,communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidentaldamages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resultingfrom the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any,constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact orrecommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address thesuitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet itscontractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, marketvalue risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION ORINFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must beweighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, andeach such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer andguarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling.

3

DisclaimerUS Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involved inthe sales or marketing of a product or service of the CRA also participates in determining or monitoring the creditrating, or developing or approving procedures or methodologies used for determining the credit rating.

No part of this presentation amounts to sales / marketing activity and A.M. Best’s Rating Divisionemployees are prohibited from participating in commercial discussions.

Any queries of a commercial nature should be directed to A.M. Best’s Market Development function.

4

Welcome & Introduction

Greg CarterManaging Director, Analytics - EMEA

Best’s Credit Rating Methodology (BCRM)

Reviewing the Building Block Approach

Mahesh MistrySenior Director, Analytics

Issuer Credit Ratings and Financial Strength Ratings

Long-TermICR

FSR

aaaaa+

A++

aaaa-

A+

a+a

A

a- A-

bbb+bbb

B++

bbb- B+

Long-TermICR

FSR

bb+bb

B

bb- B-

b+b

C++

b- C+

ccc+ccc

C

ccc-cc

C-

7

8

Building Block Approach

A.M. Best’s Rating Process: Recap

A.M. Best’s Rating Process: Recap

9

Assessment

Strongest

Very Strong

Strong

Adequate

Weak

Very Weak

Assessment

Very Strong +2

Strong +1

Adequate 0

Marginal -1

Weak -2

Very Weak -3

Assessment

Very Favorable +2

Favorable +1

Neutral 0

Limited -1

Very Limited -2

Assessment

Very Strong +1

Appropriate 0

Marginal -1

Weak -2

Very Weak -3/4

Country Risk (EMEA Examples)

10

Country CRT Economic Risk Political Risk Financial System Risk MovementUK 1 Very Low Very Low Very Low

Germany 1 Very Low Very Low Very Low

France 1 Low Low Very Low

Spain 2 Low Low Low

Bermuda 2 Low Low Low

Italy 2 Low Low Moderate

UAE 3 Moderate Moderate Low

Qatar 3 Low Moderate Moderate

Malta 3 Moderate Low Moderate

Oman 4 Moderate High High Down to CRT-4 in 2018

Bahrain 4 High Moderate Moderate Down to CRT-4 in 2015

Russia 4 Moderate High High

Kazakhstan 4 Moderate High High

Egypt 5 High Very High Very High Down to CRT-5 in 2011

Kenya 5 High High Very High

Nigeria 5 High Very High Very High

Balance Sheet Strength: The Baseline Assessment

11

Overall Balance Sheet Strength Assessment

CRT-1 CRT-2 CRT-3 CRT-4 CRT-5

Strongest a+/a a+/a a/a- a-/bbb+ bbb+/bbb

Very Strong a/a- a/a- a-/bbb+ bbb+/bbb bbb/bbb-

Strong a-/bbb+ a-/bbb+ bbb+/bbb/bbb- bbb/bbb-/bb+ bbb-/bb+/bb

Adequate bbb+/bbb/bbb- bbb+/bbb/bbb- bbb-/bb+/bb bb+/bb/bb- bb/bb-/b+

Weak bb+/bb/bb- bb+/bb/bb- bb-/b+/b b+/b/b- b/b-/ccc+

Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below

Com

bine

d B

alan

ce S

heet

Ass

essm

ent

(Rat

ing

Uni

t/ H

oldi

ng C

ompa

ny)

Country Risk Tier

Exhibit A.6

Overall Balance Sheet Strength Assessment

Combined Balance Sheet Assessment (Rating Unit/ Holding Company)Country Risk Tier

CRT-1CRT-2CRT-3CRT-4CRT-5

Strongesta+/aa+/aa/a-a-/bbb+bbb+/bbb

Very Stronga/a-a/a-a-/bbb+bbb+/bbbbbb/bbb-

Stronga-/bbb+a-/bbb+bbb+/bbb/bbb-bbb/bbb-/bb+bbb-/bb+/bb

Adequatebbb+/bbb/bbb-bbb+/bbb/bbb-bbb-/bb+/bbbb+/bb/bb-bb/bb-/b+

Weakbb+/bb/bb-bb+/bb/bb-bb-/b+/bb+/b/b-b/b-/ccc+

Very Weakb+ and belowb+ and belowb- and belowccc+ and belowccc and below

2

3

4

5

6

A

B

C

D

CRT-1

CRT-2

Strongest

a+/a

a+/a

Very Strong

a/a-

a/a-

Strong

a-/bbb+

a-/bbb+

Combined Balance Sheet Assessment

(Rating Unit/ Holding Company)

Country Risk Tier

Building Block: Balance Sheet Strength

2

31

57

102 1

15

1923 22 3

1

a+ a a- bbb+ bbb bbb- bb+ bb

Mature Emerging

Balance Sheet Strength: Baseline ICR Assessment

Best’s Capital Adequacy Ratio (BCRM) Guidelines

13

VaR Level (%) BCAR BCAR Assessment

99.6 > 25 at 99.6 Strongest

99.6 > 10 at 99.6 & ≤ 25 at 99.6 Very Strong

99.5 > 0 at 99.5 & ≤ 10 at 99.6 Strong

99 > 0 at 99 & ≤ 0 at 99.5 Adequate

95 > 0 at 95 & ≤ 0 at 99 Weak

95 ≤ 0 at 95 Very Weak

* Companies with < 20 million USD in capital & surplus cannot score in strongest category

BCAR = ( Available Capital - Net Required Capital) x 100Available Capital

Reinsurers: BCAR Scores (1 in 250)

14

86

81 80 79

72 70 6966

63 61 59 59 57 57 55 54 53 52 51 50 49 4946 45 44 43

41 41 39 38 3734

32

2622 20

4

-13

%

Reinsurers

Average

Mature

Emerging

Strongest Threshold

BCAR @ VAR 99.6%

Insurers BCAR Scores (Mature Markets) (1 in 250)

15

87

7977

7470 68 68 67 66 65 64 63 61 61

58 57 57 57 56 5653

51 50 49 49 48 48 46 45 44 43 42 42 41 41 41 39 39 3937

34 32 31 30 30 3027

24 2320 18 18 18 17 15

5

%

Insurers

Average

Strongest Threshold

BCAR @ VAR 99.6%

Balance Sheet Strength: Relationship of BCAR

16

Mature Balance Sheet Strength

Assessment Strongest Very Strong Strong Adequate Weak

BCAR

Strongest 16% 59% 8% 2% 1%

Very Strong 2% 5% 4% 0% 0%

Strong 0% 0% 2% 0% 0%

Adequate 0% 0% 0% 1% 0%

Weak 0% 0% 0% 0% 1%

Emerging Balance Sheet Strength

Assessment Strongest Very Strong Strong Adequate Weak

BCAR

Strongest 1% 59% 21% 0% 0%

Very Strong 0% 1% 10% 0% 0%

Strong 0% 0% 2% 1% 0%

Adequate 0% 0% 1% 2% 0%

Weak 0% 0% 0% 0% 0%

The BCAR is not the sole determinant of balance sheet strength

Most companies have a balance sheet strength assessment of “Very Strong”

Balance Sheet Strength: Key Characteristics

17

CRT 1 / CRT 2 CRT 3 / CRT 4 /CRT 5BCAR BCAR

Liquidity Appropriateness of RI Programme

ALM Capital Structure / Leverage

Appropriateness of RI Programme Quality of Capital

Stress Testing Holding Co Assessments

Capital Structure / Leverage Reserve Quality

Liquidity Financial Flexibility

Quality of Capital Liquidity

Holding Co Assessment Quality of Assets

Quality of Assets Stress Testing

Reinsurance Dependence ALM

Reserve Quality Reinsurance Dependence

Operating Performance: Distribution of Ratings

18

44 51

8

3538

9

1Very Strong (+2) Strong (+1) Adequate (0) Marginal (-1) Weak (-2)

EmergingMature

Operating Performance (5YR AVE)

19

48% 53%

67%

Strong Adequate Marginal

Loss Ratio

69%87%

102%

Strong Adequate Marginal

Combined Ratio

56% 60% 62%

95%

Strong Adequate Marginal Weak

Loss Ratio

75%91%

108%

149%

Strong Adequate Marginal Weak

Combined Ratio

Mature Markets

Emerging Markets

Operating Performance

20

13%10%

2%

-5%

Strong Adequate Marginal Weak

Emerging Markets – Five Year Average Return on Equity

13%

9%

-1%

Strong Adequate Marginal

Mature Markets – Five Year Average Return on Equity

Operating Performance:Return on Equity (5 year average)

21

0.0

0.1

0.2

-10% 0% 10% 20% 30%

Stan

dard

Dev

iatio

nMature Markets

Strong Adequate Marginal

0.0

0.1

0.2

-20% -10% 0% 10% 20% 30%St

anda

rd D

evia

tion

Emerging Markets

Strong Adequate Marginal Weak

Operating Performance: Key Considerations

22

Underwriting Performance Investment Performance

Overall Earnings Volatility

Diversity of Income Streams Diversity of Earnings by Market

Track Record of Past Performance Prospective Earnings Generations

Performance Relative to Peers Prospective Market Conditions

Economic Conditions (inflation, interest rates)

Business Profile: Distribution of Ratings

23

9 15

54

252

31

47

3Very Favourable

(+2)Favourable (+1) Neutral (0) Limited (-1) Very Limited (-2)

EmergingMature

Business Profile: General Characteristics

24

Very Favourable LimitedCRT1

CRT5

CRT3

Neutral-Superior global franchise-Well Diversified by Product-Excellent Distribution-Market Leaders-Pricing Sophistication->USD 10bn in revenue-Core markets/products are performing well-Forefront of innovation

-Strong position in a single market or niche segment-Limited diversification by product / territory-Good distribution / exclusively - strong competition prevails-Good in-house expertise and capabilities-Some concerns on core lines-Good data and pricing sophistication

-Strong market profile / leader in a single market-Limited size on global scale-Narrow profile on net basis-Some dependence on third parties-High degree of competition-Regulatory Risk

-Small-to-Medium sized players-Limited profile on global scale-High dependence on third parties-High levels of competition-Poor data quality-Weak management-Limited diversification by product or geography-High regulatory risk

Enterprise Risk Management: Distribution of Ratings

25

9

92

2

48

278

Very Strong (+1) Appropriate (0) Marginal (-1) Weak (-2)

EmergingMature

ERM: Risk Framework Evaluation

26

20 18 14 1921

72

5979 65

71

7

22

614

7

Risk Appetiteand Tolerance

Stress Testing RiskIdentificationand Reporting

RiskManagementand Controls

Governanceand RiskCulture

Embedded Developed Emerging Nascent Unrecognized

26

12

31

19 18

40

39

41

50

41

11

24

6 919

Risk Appetiteand Tolerance

Stress Testing RiskIdentificationand Reporting

RiskManagementand Controls

Governance andRisk Culture

Emerging MarketsMature Markets

ERM: Risk Profile Evaluation

27

Composite Risk Profile Risk CapabilityGlobal Reinsurance Groups High Appropriate to Very Strong

Global Insurance Groups High Appropriate to Very Strong

London Market High Appropriate

Emerging Market Insurers Medium Marginal to Appropriate

Emerging Market Reinsurers Medium Marginal to Appropriate

Credit Insurers Medium Appropriate

Mature Market Insurers Medium to Low Appropriate

Mature Market Reinsurers Medium to Low Appropriate

Health Insurers Medium to Low Marginal to Appropriate

Captives Medium to Low Appropriate

RevisedBest’s Credit Rating Methodology (BCRM)

in action

Mock Rating Committee

A.M. Best Credit Rating Analysts

An Updated BCRM

• Not a fundamental change to rating analysis

• Key rating drivers remain the same– Balance Sheet Strength– Operating Performance– Business Profile– Enterprise Risk Management

29

An Updated BCRM: Building Blocks

30

Balance Sheet Strength

Baseline

Operating Performance

BusinessProfile

Enterprise Risk

Management

Comprehensive Adjustment1

RatingLift/Drag2

Issuer Credit Rating

Country Risk

+2+1

+1

+1

-1

-2

-3

-1

-2

-3

-1

-2

+2

Maximum +2

-4

Notes:1: A comprehensive adjustment can be applied of + 1 or - 1 for creditworthiness not captured elsewhere2: Applies to assessment of non-lead rating units in relation to the broader organisation leading to lift/drag +4 to -4

Balance Sheet Strength Assessment: Not just BCAR

31

A.M. Best - An Introduction 20 March 2018

Balance Sheet Strength

Assessment

Asset Liability Matching

(ALM)

Quality of Capital

Reinsurance Program

Fungibility of Capital

Liquidity

StressTesting

BCAR Guidelines

32

VaR Level (%) BCAR BCAR Assessment

99.6 > 25 at 99.6 Strongest

99.6 > 10 at 99.6 & ≤ 25 at 99.6 Very Strong

99.5 > 0 at 99.5 & ≤ 10 at 99.6 Strong

99 > 0 at 99 & ≤ 0 at 99.5 Adequate

95 > 0 at 95 & ≤ 0 at 99 Weak

95 ≤ 0 at 95 Very Weak

* Companies with < 20 million USD in capital & surplus cannot score in strongest category

BCAR = ( Available Capital - Net Required Capital) x 100Available Capital

Baseline Rating from Balance Sheet Strength

33

CRT-1 CRT-2 CRT-3 CRT-4 CRT-5

Strongest a+/a a+/a a/a- a-/bbb+ bbb+/bbb

Very Strong a/a- a/a- a-/bbb+ bbb+/bbb bbb/bbb-

Strong a-/bbb+ a-/bbb+ bbb+/bbb/bbb- bbb/bbb-/bb+ bbb-/bb+/bb

Adequate bbb+/bbb/bbb- bbb+/bbb/bbb- bbb-/bb+/bb bb+/bb/bb- bb/bb-/b+

Weak bb+/bb/bb- bb+/bb/bb- bb-/b+/b b+/b/b- b/b-/ccc+

Very Weak b+ and below b+ and below b- and below ccc+ and below ccc and below

Com

bine

d B

alan

ce S

heet

Ass

essm

ent

(Rat

ing

Uni

t/ H

oldi

ng C

ompa

ny)

Country Risk Tier

Exhibit A.6

Overall Balance Sheet Strength Assessment

Combined Balance Sheet Assessment (Rating Unit/ Holding Company)Country Risk Tier

CRT-1CRT-2CRT-3CRT-4CRT-5

Strongesta+/aa+/aa/a-a-/bbb+bbb+/bbb

Very Stronga/a-a/a-a-/bbb+bbb+/bbbbbb/bbb-

Stronga-/bbb+a-/bbb+bbb+/bbb/bbb-bbb/bbb-/bb+bbb-/bb+/bb

Adequatebbb+/bbb/bbb-bbb+/bbb/bbb-bbb-/bb+/bbbb+/bb/bb-bb/bb-/b+

Weakbb+/bb/bb-bb+/bb/bb-bb-/b+/bb+/b/b-b/b-/ccc+

Very Weakb+ and belowb+ and belowb- and belowccc+ and belowccc and below

2

3

4

5

6

A

B

C

D

CRT-1

CRT-2

Strongest

a+/a

a+/a

Very Strong

a/a-

a/a-

Strong

a-/bbb+

a-/bbb+

Combined Balance Sheet Assessment

(Rating Unit/ Holding Company)

Country Risk Tier

Operating Performance & Business Profile

34

Enterprise Risk Management (ERM)

35

• Holistic assessment of the risk management framework and evaluation of risks relative to capabilities

Evaluate ERM through an ORSA-type lens

• Part I: Framework Evaluation• Part II: Risk Evaluation• Part III: Overall ERM Assessment

Redesigned Risk Impact Worksheet (RIW)

Rating Committee Voting• Voting quorum – minimum of six members, including at

least two senior members

• Simple majority vote is acceptable for the approval of any rating action

• Chair can break tie or refer the decision to a higher committee

• Voting members must have no conflicts of interest, but must have relevant experience and have passed compliance requirements

36

Rating Committee Members

37

• Michael DunckleyAssociate Director (Primary Analyst)

• Angela YeoSenior Director (Team Leader)

• Catherine ThomasSenior Director (Chair)

• Mathilde JakobsenDirector

• Charlotte VigierSenior Financial Analyst

• Konstantin LangowskiFinancial Analyst

IntroductionBMF Insurance Company

• New rating of a standalone insurance company

• Recommendation: rating of ‘a-’, stable outlook

38

Long-TermICR

FSR

aaaaa+

A++

aaaa-

A+

a+a

A

a- A-

bbb+bbb

B++

bbb- B+

Overview - BMF Insurance Company

• Domiciled in a small European country

• Country Risk Tier 2 – stable operating environment

• BMF Insurance Company (BMF) established 70 years ago and is a private company

• Fifth-largest insurer in its country of domicile

• Management have in-depth knowledge and experience of the local market

39

• Risk-adjusted capitalisation is assessed as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR)

• Balance Sheet Strength factors:– Good internal capital generation and prudent reserving approach– Appropriate reinsurance protection with good security– Financial flexibility is limited as BMF is a privately held company

• BMF comfortably meets local solvency requirements

Balance Sheet Strength - BMF Insurance CompanyBalance Sheet Strength

BCAR (99.6 VaR) 2016 2017 2018e 2019e 2020e

Standard 30% 35% 34% 32% 32%

CAT Stress 25% 30% 29% 27% 27%

40

Balance Sheet Strength - BMF Insurance CompanyInvestments

• Historically: significant exposure to Peripheral European Sovereign Debt

• De-risked portfolio since 2016, leading to improvement in risk-adjusted capitalisation

42% 41%

62%

30% 28%

7%

20% 23% 21%

6% 4% 5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2017

Fixed income Peripheral European Sovereign Debt

Public Equity Mutual funds

Property

41

Balance Sheet Strength - BMF Insurance CompanyReserving

• Reserves are reviewed by an internal actuary quarterly and by an external actuary annually

• Small margin in held reserves over external actuaries best estimate

• Loss triangles for the past 10 years indicate stability

• Modest reserve releases in each of the past three years

42

Balance Sheet Strength - BMF Insurance CompanyReinsurance

• Reinsurance includes both proportional and non-proportional arrangements

• 92% of reinsurers are rated “A-” or above• Limited cat risk in local market, earthquake risk is borne by state

reinsurer

43

Balance Sheet Strength - BMF Insurance CompanyKey factors

• BCAR scores in the ‘strongest’ range

• Good internal capital generation to support planned growth

• Stable reserve development• Limited CAT risk

• Comprehensive reinsurance with high quality panel

• Limited financial flexibility• Sovereign risk exposure has

reduced• CRT-2 domicile

44

Balance Sheet Strength - BMF Insurance CompanySummary

• Balance sheet strength assessed as ‘very strong’

• ‘a’ starting point selected.

45

Operating Performance - BMF Insurance CompanyOverall performance

• Good return on equity, averaging 8% over the last five years

16

-11

19 20 21 2223

7

7

7 6 35 6

-2

2

4 2

-3

11

-15

-10

-5

0

5

10

15

20

25

30

35

2013 2014 2015 2016 2017 2018e 2019e

EUR

mill

ions

Technical profit Investment Income

46

Operating Performance - BMF Insurance CompanyUnderwriting

• Diverse product range has supported stable underwriting performance

• Combined ratios average 95% over the past five years

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017Lo

ss ra

tio

PA and HealthMotor and Third-Party LiabilityFire and PropertyMarine

47

Operating Performance - BMF Insurance CompanyUnderwriting

2013 2014 2015 2016 2017 2018e 2019e

BMF Combined ratio 92% 105% 93% 94% 92% 93% 96%

Market average 93% 103% 95% 95% 94% 94% 94%

• Combined ratio largely in line with peers• Expected to increase in 2019 due to higher expenses of new

branch

48

Operating Performance - BMF Insurance CompanyInvestment income

• Investment yield reduced due to sale of high-risk assets

• Reinvestment rate reducing year on year –currently 2.5%

2.0%

2.1%

2.2%

2.3%

2.4%

2.5%

2.6%

2.7%

2.8%

2.9%

3.0%

2013 2014 2015 2016 2017 2018e

Investment Yield

49

Operating Performance - BMF Insurance CompanySummary

• Operating performance is in line with the ‘adequate’ assessment– Stable underwriting performance– Modest investment income reflective of low-risk strategy– Generally in line with peers

50

Business Profile - BMF Insurance CompanyBusiness split

• Well diversified insurance portfolio by line of business

6% 5% 6%

34% 36% 37%

40% 38% 40%

11% 15% 11%9% 6% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2017

PA and Health Motor and Third-Party LiabilityFire and Property MarineMisc

51

Business Profile - BMF Insurance CompanyGross Written Premium (GWP) development

• GWP increased by 11% during 2017, driven by increase in motor and property business

• High competition from local and foreign players

• Planned growth driven by higher volume from new branch, moderate rate increases

0

50

100

150

200

250

300

350

400

450

500

2013 2014 2015 2016 2017 2018e 2019e

EUR

mill

ions

Gross Written Premium Net Written Premium

52

Business Profile - BMF Insurance CompanyBusiness plans

• Geographically concentrated, only writing local business

• Plans to open a branch in a neighbouring country in 2019 to diversify geographically

• Growth of 10 - 15% expected over each of the next three years, includes growth via new branch

• New branch represents execution risk

53

Business Profile - BMF Insurance CompanySummary

• Business profile supports the ‘limited’ recommendation: – Mid-size player within fragmented market– Strong brand recognition– Diverse product offering– Offset by geographical concentration– Expected diversification via branch comes with execution risk

54

Enterprise Risk ManagementBMF Insurance Company

Principal Areas of Focus – Risk Categories• Product & Underwriting Risk• Reserving Risk• Concentration Risk• Reinsurance Risk• Financial Flexibility Risk

• Investment Risk• Legislative/Regulatory/

Judicial/Economic Risk• Management Risk• Operational Risk• Risk Appetite/Stress Testing

55

Enterprise Risk ManagementBMF Insurance Company

Principal Areas of Focus – Risk Categories• Product & Underwriting Risk• Reserving Risk• Concentration Risk• Reinsurance Risk• Financial Flexibility Risk

• Investment Risk• Legislative/Regulatory/

Judicial/Economic Risk• Management Risk• Operational Risk• Risk Appetite/Stress Testing

56

SummaryBMF Insurance Company

Recommendation: a rating of ‘a-’, stable outlook

57

Long-TermICR

FSR

aaaaa+

A++

aaaa-

A+

a+a

A

a- A-

bbb+bbb

B++

bbb- B+

Q&AInteractive Discussion

58

2018 Methodology Review Seminar

etc.venues St.Paul’s, London

6 November 2018

Slide Number 1Agenda: 2018 Methodology Review Seminar DisclaimerDisclaimerSlide Number 5Slide Number 6Issuer Credit Ratings and Financial Strength RatingsA.M. Best’s Rating Process: RecapA.M. Best’s Rating Process: RecapCountry Risk (EMEA Examples)Balance Sheet Strength: The Baseline AssessmentBuilding Block: Balance Sheet StrengthBest’s Capital Adequacy Ratio (BCRM) GuidelinesReinsurers: BCAR Scores (1 in 250)Insurers BCAR Scores (Mature Markets) (1 in 250)Balance Sheet Strength: Relationship of BCARBalance Sheet Strength: Key CharacteristicsOperating Performance: Distribution of RatingsOperating Performance (5YR AVE)Operating PerformanceOperating Performance:�Return on Equity (5 year average)Operating Performance: Key ConsiderationsBusiness Profile: Distribution of RatingsBusiness Profile: General CharacteristicsEnterprise Risk Management: Distribution of RatingsERM: Risk Framework EvaluationERM: Risk Profile EvaluationSlide Number 28An Updated BCRMAn Updated BCRM: Building BlocksBalance Sheet Strength Assessment: Not just BCARBCAR GuidelinesBaseline Rating from Balance Sheet StrengthOperating Performance & Business ProfileEnterprise Risk Management (ERM)Rating Committee VotingRating Committee MembersIntroduction�BMF Insurance CompanyOverview - BMF Insurance CompanyBalance Sheet Strength - BMF Insurance Company�Balance Sheet StrengthBalance Sheet Strength - BMF Insurance Company�InvestmentsBalance Sheet Strength - BMF Insurance Company�ReservingBalance Sheet Strength - BMF Insurance Company�ReinsuranceBalance Sheet Strength - BMF Insurance Company�Key factorsBalance Sheet Strength - BMF Insurance Company�SummaryOperating Performance - BMF Insurance Company�Overall performanceOperating Performance - BMF Insurance Company�UnderwritingOperating Performance - BMF Insurance Company�UnderwritingOperating Performance - BMF Insurance Company�Investment incomeOperating Performance - BMF Insurance Company�SummaryBusiness Profile - BMF Insurance Company�Business splitBusiness Profile - BMF Insurance Company�Gross Written Premium (GWP) developmentBusiness Profile - BMF Insurance Company�Business plansBusiness Profile - BMF Insurance Company�SummaryEnterprise Risk Management�BMF Insurance CompanyEnterprise Risk Management�BMF Insurance CompanySummary�BMF Insurance CompanySlide Number 58Slide Number 59