Presentation Slides - AM Best · Corporate Segment 11 Canadian Life Segment –Corporate...

Presentation Slides

Canadian Life Insurance Industry Briefing………………………………………………….. 2

Property/Casualty: Worries in the Wind and Other Observations……………………… 34

September 13, 2019

AM Best Company’s 13th Annual Insurance Market Briefing Canada

Canadian Life Insurance Industry Briefing

Anthony McSwieney, SFA

Michael Adams, SFA

September 13, 2019


Agenda

• Rating Outlook

• Industry Financial Attributes

• Rating Topics/Issues

- IFRS 17

- Innovation

- DTC

- Libor

• Industry Survey Questions

• Benchmarking

2

Rating Outlook Continues at Stable

• Outlook is stable, with concerns over recent global rate movements and volatility in financial markets

• Strong regulatory capital

• Favorable earnings and underwriting performance

• Ratings for Canadian Insurers are strong

• Adequate levels of financial flexibility

• Outlook does not factor in company specific rating movements

• Clarity around regulatory capital in the near term (IFRS 17)

3

Pre-Tax Income

4

13

10

13

11

14

0

2

4

6

8

10

12

14

16

2014 2015 2016 2017 2018

(CA

D b

illi

on

s)

Canadian Life Segment – Pretax Income/Loss

Source: AM Best data and research

Direct Premium Trends

5

8.9 9.8 10.6 11.5 11.7

24.225.5 26.7 27.4 29.4

8.08.1

8.99.6

11.119.9

21.921.5

22.222.6

0

10

20

30

40

50

60

70

80

2014 2015 2016 2017 2018

(CA

D b

illi

on

s)

Life Annuity A&S Participating Other

Canadian Life Segment – Direct Premiums Written by Line of Business Canada and US only


DPW – Geographic Diversification

6

49.0 50.8 53.8 57.0 60.4

11.514.5

13.913.7

14.3

3.1

4.4 3.44.8

6.0

10.7

15.220.1

19.0

20.7

0

10

20

30

40

50

60

70

80

90

100

2014 2015 2016 2017 2018

(CA

D b

illi

on

s)

Asia/Other Europe US Canada

Canadian Life Segment – DPW by Geographic Distribution


Mutual Fund Deposits - Geographic Distribution

7

29.0

41.8 41.230.7

28.7

45.2

49.2 50.9

49.08.1

11.6

12.6 15.3

13.6

0

20

40

60

80

100

120

2014 2015 2016 2017 2018

(CA

D b

illi

on

s)

Canada US Other

Canadian Life Segment – Mutual Fund Deposits by Geographic Distribution


Investment New Income

8

0

5

10

15

20

25

30

35

40

550

600

650

700

750

800

2014 2015 2016 2017 2018

Inte

res

t, Div

ide

nd

s, &

Inc

om

e

(CA

D b

illi

on

s)

Invested Assets Invest. Income Excluding Derivatives

Canadian Life Segment – Investment Income


Bond Segmentation

9

151.8 163.4 170.7 174.8 174.4

20.522.8 27.8 29.9 31.3

175.5185.7

192.1207.4 221.3

59.7

67.268.5

75.884.4

0

100

200

300

400

500

600

2014 2015 2016 2017 2018

CA

D B

illio

ns

Bond Portfolio Distribution

Government Muni Corporate - Public Corporate - Private

Canadian Life Segment – Bond Portfolio (%)

Portfolio Components 2014 2015 2016 2017 2018

Government 37.2 37.2 37.2 35.8 34.1

Municipal, Public Authority, Schools 5.0 5.2 6.0 6.1 6.1

Corporate - Public 43.1 42.3 41.8 42.5 43.3

Corporate - Private 14.7 15.3 14.9 15.5 16.5

Total 100.0 100.0 100.0 100.0 100.0

Note: Percentages may not add due to rounding


Canadian Insurers – Invested Assets

10

Canadian Life Segment – Invested Assets (%)

2014 2015 2016 2017 2018

Bonds 62.2 62.7 63.5 65.1 65.3

Mortgage Loans 12.1 11.7 11.3 11.0 11.5

Stocks 6.5 5.7 6.2 6.5 5.7

Real Estate 3.5 3.9 3.5 3.5 3.2

Policy Loans 2.4 2.2 2.0 1.9 1.9

Cash & Short-term 5.5 5.1 4.5 4.5 4.3

Derivatives 3.4 3.8 3.6 2.4 2.0

Other Invested Assets 4.5 4.8 5.2 5.2 6.1

Total 100.0 100.0 100.0 100.0 100.0



Corporate Segment

11

Canadian Life Segment – Corporate Investments (%)

Sector/Country 2014 2015 2016 2017 2018

Energy 10.1 10.1 11.2 10.7 10.4

Basic Materials 2.9 2.5 2.4 2.1 2.1

Industrial 9.6 10.9 10.3 10.4 10.8

Consumer Cyclical 6.0 6.1 4.5 4.9 4.8

Consumer Non-Cyclical 7.0 6.9 7.9 8.1 8.4

Diversified/Healthcare 2.0 2.0 2.3 2.2 2.4

Financial 27.0 25.9 21.7 21.7 21.9

Technology 1.4 1.5 1.8 1.9 1.8

Communications 3.9 3.7 3.8 3.7 4.2

Utilities 23.7 24.4 25.1 25.6 24.4

Other 6.4 6.0 9.0 8.7 8.8

Total All Sectors 100.0 100.0 100.0 100.0 100.0

Canada 39.3 36.6 36.3 36.2 34.4

United States 39.9 40.9 41.9 41.6 41.3

Other 20.8 22.5 21.8 22.2 24.3

Total 100.0 100.0 100.0 100.0 100.0



Life Rating Topics

12

IFRS 17 LIBOR

Innovation Direct to Consumer

IFRS 17 – Industry Issues

• Potential significant impact to financial statements

- More policy level type information

• Tax and regulatory capital

- Closer to an economic capital view

• Potential implications to LICAT are not known

- Expectations are that it would be limited

• Non-life companies have a lesser impact

• Clearer view of insurance operations will emerge over time

13

IFRS 17 – Industry Issues

• Variation in implementation between companies are possible

• Three Approaches in the standard will likely produce different results

- Premium Allocation Approach (PAA), Variable Fee Approach (VFA), Building

Block Approach (BBA)

• IFRS 9 adoption coincides with IFRS 17

- Decisions around accounting for loans (amortized vs market value)

14

IFRS 17 – Illustrative Balance Sheet

15

Capital Capital

Assets

Deferred Acquisition Costs

Contractual Service Margin

Risk Adjustment

Claims Reserves

Best Estimate Liability

Unearned Premium Reserves (UPR)

UPR (Premium Allocation Approach)

Other Liabilities

Other Liabilities

Assets Liabilities(IFRS 4)

Liabilities(IFRS 17)

LIBOR 2021

• Increase in costs and risk (different rate calculation)

• Possible options – Ameribor (unsecured market driven) and Secure Overnight Financing Rate (SOFR) – risk free secured type of rate

• May have more than one rate index used in the marketplace ?

• Volume of potential/actual contract renegotiations (est. @ $200 trillion)

• Communication issues/legal

• Insurers should be working with regulators along with the banking industry

• Wait and see what the industry does may not be the best course

• Insurers so far are in the assessment stage

16

AM Best Life Insurance Survey Question – DTC

17

Direct To Consumer Models – Current State

18

Technology based applications and tools are only one aspect

Insurers rely heavily on the agent in the current process

Internal and external aspects (capital/resource considerations)

DTC for insurers vs. consumer products are much different

How does this evolve ?

Innovation

19

Will not impact rating outcomes for life insurers

Discussions have started this year with companies

Preliminary testing had been done

After finalization of methodology this month a period of analysis will take place

Benchmarking

20

Benchmarking

21

Must be analyzed in the context of an appropriate peer group

Need to understand external factors affecting trends

Benchmarking results reviewed at Rating Committee

Balance Sheet Strength Assessment Distribution

22

Strongest, 15.8%

Very Strong, 68.4%

Strong , 10.5%

Adequate, 5.3%

Strongest Very Strong Strong Adequate

BCAR ≠ Balance Sheet Strength Assessment

23

Strongest, 42.1%

Strongest, 15.8%

Very Strong, 36.8%

Very Strong, 68.4%

Strong , 10.5%

Strong , 10.5%Adequate, 5.3%

Adequate, 5.3%Weak, 5.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

BCAR ASSESSMENT BSS ASSESSMENT

Strongest Very Strong Strong Adequate Weak

Other Balance Sheet Strength Factors

24

Strength of Reserves

Quality and Appropriateness of Reinsurance Program

Reinsurance Dependence

Quality and Diversification of Assets

Financial and Operating Leverage

Liquidity

Quality and Fungibility of Capital

Internal Capital Models

Asset Liability Matching

Financial Flexibility

Operating Performance Assessment Distribution

25

Strong +1, 57.9%

Adequate +0, 42.1%

Strong +1 Adequate +0

Operating Performance: Factors

26

Premium Growth Trends

Underwriting Performance

Financial Forecasts/Plans

Persistency

Net Yield

Pre-Tax Total Return

Pre-Tax Operating ROR

Operating ROE

Business Profile Assessment Distribution

27

Very Favorable +2, 5.3%

Favorable +1, 15.8%

Neutral +0, 68.4%

Limited -1, 10.5%

Very Favorable +2 Favorable +1 Neutral +0 Limited -1

Business Profile Factors

28

Market Position

Degree of Competition

Distribution Channels

Pricing Sophistication and Data Quality

Management Quality

Product/Geographic Concentration

Product Risk

Regulatory, Event and Market Risk

ERM Assessment Distribution

29

Very Strong +1, 5.3%

Appropriate +0, 94.7%

Very Strong +1 Appropriate +0

BCRM Overview

30

Framework

Evaluation

Risk

Evaluation

ERM

Assessment

Questions

31

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32

Property/Casualty: Worries in the Wind and Other Observations

Raymond Thomson, CPCU, ARe, ARM, AIAF – Director

Gordon McLean – Senior Financial Analyst

Daniel Heitlinger, CFA, CAIA – Financial Analyst

September 13, 2019


Agenda

2

2018 Year in Review and Future Outlook

M&A, Insurtech, and Other Emerging Issues

Canadian Rating Benchmarking and Reinsurance

2018 in Review

3

Interactive Rating Distribution

4

100 100 100

109 108 108103

100 101 100

-

20.0

40.0

60.0

80.0

100.0

120.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

Nu

mb

er

of

Rati

ng

s

Fair or worse Good Excellent Superior

Canada Property/Casualty – Interactive Ratings Distribution (2010-2019*)

*Through June 30, 2019. All other years, as of year end


Market Share

Canadian P/C Market Share - Top 10 - 2018

C$ Billions% of

Industry TotalRank Group / Company DPW

1 Intact Group 8.6 14.4%

2 Aviva Group 5.3 8.9%

3 Desjardin Group 4.9 8.3%

4 Lloyds Underwriters CAB 3.5 5.9%

5 Co-operators Group 3.3 5.6%

6 Wawanesa Mutual Insurance Company 3.3 5.5%

7 TD Insurance Group 3.2 5.4%

8 RSA Group 3.0 5.1%

9 Economical Group 2.5 4.2%

10 Northbridge Group 1.7 2.9%

All Other 20.2 33.8%

Industry Total 59.6 100.0%

5


66.3 63.2 65.6 63.9 69.6 71.4 70.1

31.732.2

32.5 33.231.9 32.0 34.4

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2014 2015 2016 2017 2018 Q2 2018 Q2 2019

Pe

rce

nta

ge

Loss Ratio Loss and Adjustment Expense Ratio

Combined Ratio Components

Canadian P/C Combined Ratios

6


98.0 95.4 98.1 97.1101.5 103.4 104.5

Canadian P/C Private Auto Trends

7

7.2

10.4

3.63.8

5.3

6.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2013 2014 2015 2016 2017 2018

Net

Pre

miu

ms

Wri

tten

Auto - Liability Auto - Personal Accident Auto Other

Canada Property/Casualty – Private Auto Insurers NPW Trend (2013-2018)*, C$ Billions


*Excludes Lloyd's CAB and ICBC

Canadian P/C Private Auto Trends

8

76.9

74.2

67.5

62.3

67.3

71.4

66.3

79.3

88.189.6

79.2

70.4

69.5

71.3

72.5

76.7

80.5

83.8

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

2013 2014 2015 2016 2017 2018

Lo

ss

Rati

o (

%)

Auto - Liability Auto - Personal Accident Auto Other

Canada Property/Casualty – Private Auto Insurers Loss Ratio Trend (2013-2018)*



Canadian P/C Property Trends

9

78.1

66.7

60.0

74.6

66.3

82.7

72.8

64.1

54.8

60.559.3

62.4

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

2013 2014 2015 2016 2017 2018

Lo

ss

Rati

o (

%)

Commercial Property Personal Property

Canada Property/Casualty – Property Insurers Loss Ratio Trend (2013-2018)*



Largest CAT Losses

10

Canadian P/C - Catastrophe Losses Greater than CAD 400 Million (1991-2018)

Year Date Location Event Loss & LAE Current Dollar

Incurred Losses (C$ Million)

2016 May Fort McMurray, Alberta Fire 3,753 3,910

1998 January Quebec, Ontario, New Brunswick Ice Storm 1,574 2,313

2013 June Alberta Flooding 1,599 1,745

2013 July Toronto Flooding 924 1,008

2005 August Ontario Tornado/Hail 625 784

2018 May Ontario and Quebec Hail/Windstorm 680 680

2014 August Alberta Hail/Windstorm 546 583

2011 May Slave Lake, Alberta Fire 528 591

2012 August Calgary and Southern Alberta Hail/Windstorm 521 576

2010 July Calgary and Southern Alberta Hail/Windstorm 487 560

1991 September Calgary and Southern Alberta Hail/Windstorm 343 554

2016 July Alberta, Manitoba, Ontario, Saskatchewan Hail/Windstorm 462 481

2009 July Calgary and Southern Alberta Hail/Windstorm 376 440

Source: AM Best data and research, IBC

Net Investment Income vs. Yield

11

2.3

2.9

2.22.5

1.92.1

2.7

3.2

2.2

2.5

2.1

2.6

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2013 2014 2015 2016 2017 2018

Net In

ve

stm

en

t Yie

ld (%

)

Net

Inve

stm

en

t In

co

me

(C$

Bil

lio

ns)

Net Investment Income(C$ Billions)

Net Investment Yield(%)

Net Investments Income Vs. Yield



Segment Outlook – Canadian Property/Casualty

12

Headwinds Tailwinds

Catastrophes – increasing frequency and severity Solid balance sheet positions

Deterioration in underwriting results due to weather and auto Sustained profitable operating performance

Challenges remain within the auto lines, Ontario and Alberta

specificallyOngoing advancements in underwriting and distribution

Market competition remains strong despite rate increases Continuing top line premium growth

Continued investment pressures – places pressure on the need

for underwriting profitFavorable reserve development patterns

High quality investment holdings

Strong and deep reinsurance programs

Solid capitalization has been achieved through retained earnings, but underwriting performance now faces pressure from

challenges associated with an increased frequency of natural catastrophe losses and inflation concerns in the auto lines. Many

carriers are employing more sophisticated underwriting mechanisms and expanding distribution platforms. AM Best continues

to maintain Stable market outlook.

Emerging Issues

13

P/C Mergers & Acquisitions Activity

• 2018: Significant M&A activity among independent agents / brokers

- 550+ deals recorded

• Interest from private investors, insurers, and non-insurers

• Mixed by size, geography, and by specialties

14

Distribution profitabilityLow interest rate

environment

Solid recurring cash flows Diversification

Potential Drivers

P/C Mergers & Acquisitions Activity: Market Implications

15

• Reduction in the number of a brokers

• Impact on commissions?

- Strengthening bargaining power

- Greater efficiencies

• M&A activity begets more M&A activity

• Shakeout of key talent

P/C Mergers & Acquisitions Activity: 2019 and Beyond

16

• Activity in 2019

- Appetite for M&A activity remains robust – as indicated by the announced acquisition of Guarantee Companies by Intact

• Expectations for the future

- Expected to remain above historical norms

• Additional market driver

- Limited international exposure

Insurtech Trends and Observations

17

• Big data, IoT, blockchain, automation, etc. remains relevant

• Investment in distribution is driving innovation

- Improved consumer experiences

- Quicker time to market

• Growth of usage-based insurance (UBI) products and platforms

- Supported by plethora of data now available

- Addresses “when” one is insured

• Shift towards more customized insurance products

Cyber Coverage, Risk, Regulation, and Other Trends

18

• Data privacy and changing regulations

- Additional stress from regulatory burdens (implementation cost, fines, etc.)

- Driving adoption

• Impact from (silent) cyber

- Loss of revenue, loss of costumers, loss of suppliers

- SME’s disproportionately benefit (vs. larger entities)

• Cyber coverage still has room to penetrate

- Opportunities amongst SMEs (revenue < $1 billion/year) is prevalent

- SMEs remain a target / alternative route to larger targets for hackers

Emerging Risks: Canadian Cannabis Market

19

• $6 billion cannabis industry

- Less than a quarter of sales from legal entities

• Legalization of edible and topical products

- Product approval process beginning October, available by December

• Allows cannabis-derived products seed into other industries

- Medical supplies, confectionery goods, beverages, cosmetics, etc.

• Opportunity for canna-businesses to expand product lines

- Opportunity for insurers to capitalize on risks

• Appropriate regulatory oversight

- Production, labeling, packaging standards mitigate risks

Emerging Risks: Cannabis Insurance Market

20

• Material number of larger entities remain hesitant

- “Unknown unknowns”, reputational risks, and limited legal precedent

- Market is dominated by opportunistic SMEs

• Product demand outpaces available capacity

- Product liability, BOP policies, other related insurance products

• Cannabis consumers and business owners becoming more sophisticated

- Maturing user demograpics

- Demanding higher limits and greater customization

• Larger Canna-businesses struggle to find D&O coverage

- Growing concern as talks of international activity escalate

Emerging Risks: Micro-mobility

• What is micro-mobility? (Example: mopeds, e-Scooters, Citi-bikes, etc.)

- Small, single-passenger, “last-mile” mode of transportation

- Often rely on clean or biokinetic sources of energy

• Not a new exposure… But could become more prevalent

• New commercial products

21

Urbanization Ridership preferences

Environmental awareness Big data and the IoT

Growth Factors

Emerging Risks: Micro-mobility, Roadblocks and Regulations

22

• Exponential growth in the US, emergent foothold in Canada

- Time to key milestones outpaced ridesharing companies

• Inconsistent and inadequate regulations

- Spectrum of regulatory solutions implemented

- Rider adoption outpacing regulatory adoption

• Rider etiquettes and safety hazards

- Where, when, and how to ride?

- Safe docking practices after usage

Benchmarking

23

Review – BCRM Building Block Approach

24

Baseline

Balance

Sheet

Strength

Baseline

Operating

Performance

(+2/-3)

Business

Profile

(+2/-2)

Enterprise

Risk

Management

(+1/-4)

Comprehensive

Adjustment

(+1/-1)

Rating

Lift/Drag

Issuer

Credit

Rating

Country Risk

Maximum + 2

Balance Sheet Strength

25

Canada P/C – Assessments US P/C – Assessments

Notch Distribution (%) Notch Distribution (%)

Assessment Starting point % Assessment Starting point %

Strongest a+ or a 33.3% Strongest a+ or a 32.0%

Very Strong a or a- 62.5% Very Strong a or a- 51.9%

Strong a- or bbb+ 0.0% Strong a- or bbb+ 9.6%

Adequate bbb+, bbb or bbb- 4.2% Adequate bbb+, bbb or bbb- 4.9%

Weak bb+, bb or bb- 0.0% Weak bb+, bb or bb- 1.4%

Very Weak b+ and below 0.0% Very Weak b+ and below 0.2%

Operating Performance

26

Canada P/C – Operating Performance US P/C – Operating Performance


Assessment Notch % Assessment Notch %

Very Strong +2 0.0% Very Strong +2 2.5%

Strong +1 12.5% Strong +1 29.3%

Adequate 0 66.7% Adequate 0 52.5%

Marginal -1 20.8% Marginal -1 14.9%

Weak -2 0.0% Weak -2 0.8%

Very Weak -3 0.0% Very Weak -3 0.0%

Business Profile

27

Canada P/C – Business Profile US P/C – Business Profile


Assessment Notch % Assessment Notch %

Very Favorable +2 0.0% Very Favorable +2 1.3%

Favorable +1 4.2% Favorable +1 8.5%

Neutral 0 66.7% Neutral 0 33.2%

Limited -1 29.1% Limited -1 54.8%

Very Limited -2 0.0% Very Limited -2 2.2%

Enterprise Risk Management Notch Distribution

Appropriate 100%

Canada P/C

Very Strong1.6%

Appropriate92.4%

Marginal6.0%

US P/C

28

Reinsurance

29

Global Reinsurance Market Trends

Combined

30

89.7% 90.4%95.2%

110.1%

102.3%97.6%

2014 2015 2016 2017 2018 Five Year Average


11.6%

9.5%

8.3%

-0.3% 1.0%

2014 2015 2016 2017 2018

Five Year Average 6.0%

Global Reinsurance Market Trends

Return on Equity

31


Global Reinsurance – Market Capital

32

Estimate – Total Dedicated Reinsurance Capital (USD billions)

292 320 340 332 345 345 341 346

19

48 60 68

75 87 95 92

311

368

400 400420

432 436 438

2012 2013 2014 2015 2016 2017 2018 2019E

Traditional Third-Party Third-Party -Trapped Portion(Low Estimate)

Third-Party -Trapped Portion(High Estimate)

Notes and Sources: Estimates by Guy Carpenter and AM Best


33

2017 Reinsurance Market Briefing, Monte Carlo10 September 2017

Third-Party Capital (USD billions)

41 45 49

6256 53

1418

21

20

34345

5

5

5

56

60

68

75

87

95 92

2014 2015 2016 2017 2018 2019E

Dedicated ILS Managers Reinsurance Sponsored Managers (including sidecars) Direct Institutional Investors

Notes and Sources: Estimates by Guy Carpenter and AM Best


34

Top 10 Global Reinsurance Groups – Non-Life Top 10 Global Reinsurance Groups – Life

Munich Reinsurance Company Swiss Re Ltd.

Swiss Re Ltd. Munich Reinsurance Company

Lloyd's Reinsurance Group of America Inc.

Hannover Rück SE SCOR S.E.

Berkshire Hathaway Inc. Hannover Rück SE

SCOR S.E. Great West Lifeco

Everest Re Group Ltd. Berkshire Hathaway Inc.

PartnerRe Ltd. Pacific LifeCorp

XL Bermuda Ltd. Assicurazioni Generali SpA

Transatlantic Holdings, Inc. PartnerRe Ltd.

Ranked by unaffiliated gross premium written in 2018


Global Reinsurance – Market Developments

35

2017 Reinsurance Market Briefing, Monte Carlo10 September 2017

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

1980-1989 1990-1999 2000-2009 2010-2018

Wildfire Insured Losses Since 1980, at 2018 Prices (USD Billion)

2018

2017

2016

2010-2015

Source: Swiss Re Sigma

What to Expect in the Near to Mid-Term Future?

Capital markets continue to be the key to sustained rate increases at the mid-year renewals

An abundance of capital waiting on the sideline

Evolving interest rate environment is a new variable the pricing equation

36

Segment Outlook – Global Reinsurance

37

Headwinds Tailwinds

Intense competitionIncreasing alignment between traditional and third-

party capital

Excess capacity limits the potential for improvementImproving pricing discipline for property cat and retro

in particular

Potential for increased inflationAccelerating pricing momentum at the primary

insurance level

Less cushion in carried loss reserves US economic growth slows, but continues

Continued interest from third-party capital, even

beyond prop-cat lines

Use of third-party capital in retrocession programs

reducing earnings volatility

AM Best revised the outlook on the Global Reinsurance sector to Stable at December 31, 2018

Appendix: Building

Block Factors

38

Balance Sheet Strength- BCAR and Other Elements

• Reinsurance dependence

• Financial flexibility

• Quality of assets

Very Strong



• Strength of reserves/fungibility of capital

Strong



• Impact of holding company

Adequate

• Financial leverage & fungibility of capitalWeak

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• BCAR

• Stress Tests

• Liquidity

• ALM

• Quality of Capital

• Quality of Reinsurance

• Appropriateness of

Reinsurance Program

• Fungibility of Capital

• Internal Capital Models

Operating Performance – Canada P/C

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Operating Performance Metrics

• Operating and Combined Ratios – Including Loss, LAE, and Expense Components

• Return Measures – On Investments, Revenues and Equity

• Financial Forecasts – Adherence to Past Forecasts and Prospective Views

• Reserve Development Trends Over Time

• Premium Growth (or Contraction) Trends – Based on Company Strategy

Predominant Business Profile

• Not a market leader, but competitive

• Moderate concentration may be offset by an advantage in a chosen market or niche

• Risks are moderate and stable

• Evolving technology for pricing and modeling capabilities

Neutral (0)

• Lack of diversification in product and/or geographic spread

• Higher-risk product offerings

• Management performance may be inconsistent

• Highly competitive market with minimal barriers to entry

Limited (-1)

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Appropriate ERM Assessment

Appropriate(0)

The insurer’s ERM framework is well-

developed.

Appropriate given the size and

complexity of its operations.

Risk management capabilities are very good and continually

evolving.

Risk management capabilities align

with the risk profile.

42

Questions

43

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