Keith

M. B

uckle

y, CF

AH

ead

of G

loba

l Ins

uran

ce /

Man

agin

g D

irect

or

Oct

ober

14,

201

6

The

Impa

ct o

f Rat

ing

Agen

cies

on th

e In

sura

nce

Indu

stry

–Fi

tch

Ratin

gsCI

PR W

ebin

ar

1

Cont

ents

1Ab

out F

itch

2Ra

tings

Pro

cess

Ove

rvie

w

3Ra

tings

Equ

ival

ence

“Whi

te P

aper

”

2

Abou

t Fitc

h

3

The

Glo

bal R

atin

g Ag

ency

with

Loc

al M

arke

t Exp

erie

nce

Who

We

Are

Fi

tch

Rat

ings

isa

glob

alra

ting

agen

cyco

mm

itted

topr

ovid

ing

valu

ebe

yond

the

ratin

gth

roug

hin

depe

nden

tand

pros

pect

ive

cred

itop

inio

ns,

rese

arch

and

data

W

eof

fer

aw

orld

ofkn

owle

dge

and

expe

rienc

ebe

hind

ever

yop

inio

n,w

etra

nsfo

rmin

form

atio

nto

deliv

erm

eani

ngan

dut

ility

toin

vest

ors,

issu

ers

and

othe

rmar

ketp

artic

ipan

ts

Our

glob

alex

perti

sedr

aws

onlo

calm

arke

tkno

wle

dge

and

span

sth

efix

edin

com

eun

iver

se

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addi

tiona

lco

ntex

t,pe

rspe

ctiv

ean

din

sigh

tw

epr

ovid

ehe

lpin

vest

ors

mak

eim

porta

ntcr

edit

judg

emen

tsw

ithco

nfid

ence

Key

Fac

ts

Foun

ded

in 1

913,

the

Fitc

h G

roup

has

dua

l hea

dqua

rters

in L

ondo

n an

d N

ew Y

ork

and

over

2,8

00 e

mpl

oyee

s gl

obal

ly

Maj

ority

ow

ned

by H

ears

t Cor

pora

tion

D

iver

sifie

d fin

anci

al s

ervi

ces

grou

p op

erat

ing

acro

ss c

redi

t rat

ings

, fin

anci

al d

ata

solu

tions

and

trai

ning

Glo

bal P

rese

nce

37

offi

ces

wor

ldw

ide

Dee

p A

naly

tical

Cov

erag

e

Div

erse

Glo

bal

Is

suer

Cov

erag

e

11

4 S

over

eign

s

3,78

7 B

anks

and

NB

FIs

(exc

. Ger

man

co-

op &

sav

ings

ban

ks)

1,

241

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ranc

e

2,81

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orpo

rate

s

419

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bal I

nfra

stru

ctur

e P

roje

cts

7,

400

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ctur

ed F

inan

ce u

nder

sur

veilla

nce

Rese

arch

D

istr

ibut

ion

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wer

ful d

istri

butio

n pl

atfo

rm th

roug

h fit

chra

tings

.com

1,

500+

dis

tinct

inst

itutio

nal s

ubsc

riber

s

40,0

00+

indi

vidu

al u

sers

Th

ousa

nds

of in

vest

ors

atte

nd c

orpo

rate

eve

nts

and

inve

stor

mee

tings

ann

ually

Mum

bai

Mon

terr

eyM

exic

o C

ity

San

Jose

San

Sal

vado

r

Sant

iago

São

Pau

lo

Bogo

ta

Mila

n

Bar

celo

naM

adrid

Rio

de

Jane

iro

Mon

tevi

deo

Paris

Fran

kfur

tW

arsa

w

Mos

cow C

olom

bo

Toky

o

Hon

g K

ong

Seou

l

Bang

kok

Taip

ei

Beijin

g

Sing

apor

e

Sydn

eyJa

karta

Dub

ai

Toro

nto

New

Yor

k

Chi

cago

San

Fran

cisc

o

Aust

in

Stoc

khol

m

Shan

ghai

Lond

on

Ista

nbul

4

Fitc

h M

arke

t Pos

ition

–N

orth

Am

erica

n In

sura

nce

Ratin

gs

91%

83%

Fitc

h In

sura

nce

Mar

ket S

hare

:20

15 N

.A. I

ssua

nce

Volu

me

Fitc

h Li

fe/H

ealth

Cov

erag

eN

.A. T

op 3

5

•Fi

tch

rate

s 38

3 Pr

oper

ty &

Cas

ualty

Insu

ranc

e en

titie

s in

Nor

th A

mer

ica

5

Ratin

gs P

roce

ss O

verv

iew

6

Fitc

h Ra

tings

: Crit

eria

Mas

ter I

nsur

ance

Crit

eria

incl

udes

K

ey C

redi

t Fac

tors

H

ybrid

Sec

uriti

es

G

roup

Rat

ing

Met

hodo

logy

N

otch

ing

Met

hodo

logy

S

tart-

up a

nd R

un-o

ff C

ompa

nies

S

hort-

term

Rat

ings

R

ecov

ery

Ana

lysi

s

C

aptiv

e In

sura

nce

Com

pani

es

Sep

arat

e IL

S C

riter

ia

7

Fitc

h Ra

tings

: Key

Cre

dit F

acto

rs

Key

Qua

litat

ive

Fact

ors

Key

Qua

ntita

tive

Fact

ors

So

vere

ign

and

coun

try-r

elat

ed c

onst

rain

ts

Cap

italis

atio

n an

d le

vera

ge

In

dust

ry p

rofil

e an

d op

erat

ing

envi

ronm

ent

D

ebt s

ervi

ce c

apab

ilitie

s an

d fin

anci

alfle

xibi

lity

B

usin

ess

prof

ile

Fina

ncia

l per

form

ance

and

ear

ning

s

O

wne

rshi

p

Inve

stm

ent a

nd a

sset

risk

C

orpo

rate

gov

erna

nce

and

man

agem

ent

As

set/L

iabi

lity

and

liqui

dity

man

agem

ent

R

eser

ve a

dequ

acy

R

eins

uran

ce, r

isk

miti

gatio

n, c

atas

troph

e ris

k

IFS

Rat

ing

Cat

egor

yA

AA

AA

AB

BB

<BB

B

Non

-Life

Rei

nsur

ance

line

s

Com

posi

te

Life

Insu

ranc

e

Rat

ings

Ran

ge B

ased

on

Indu

stry

Pro

file/

Ope

ratin

g E

nviro

nmen

t

8

Fitc

h Ra

tings

: Sec

tor C

redi

t Fac

tors

Incr

ease

s Tr

ansp

aren

cy

S

uppl

emen

tary

repo

rts d

escr

ibin

g th

e ke

y cr

edit

fact

ors

used

to a

naly

ze s

peci

fic

sect

ors

and

regi

ons

In

clud

ing

vario

us m

edia

n fin

anci

al ra

tios

by

ratin

g ca

tego

ry, a

s w

ell a

s ch

arts

that

de

mon

stra

te h

ow k

ey q

ualit

ativ

e fa

ctor

s af

fect

a ty

pica

l rat

ing

rang

e

9

Ratin

gs E

quiv

alen

ce “W

hite

Pap

er”

10

Fitc

h w

hite

pap

er re

visit

ed

“N

ot A

ll In

sure

r Fin

anci

al S

treng

th R

atin

gs A

re C

reat

ed E

qual

”

W

hite

Pap

er o

n La

ck o

f Com

para

bilit

y of

A.M

. Bes

t’s ‘A

-’ IF

S R

atin

gs to

Tho

se o

f Fitc

h

P

ublis

hed

by F

itch

in J

uly

2016

K

ey C

oncl

usio

n: A

n ‘A

-’ In

sure

r Fin

anci

al S

treng

th (I

FS) r

atin

g fro

m A

M B

est i

s m

ost c

ompa

rabl

e to

a ‘B

BB

’ IFS

ratin

g fro

m F

itch

(as

wel

l as

S&

P an

d M

oody

’s)

W

e ur

ge ra

tings

use

rs to

mod

ify ra

tings

equ

ival

ency

sta

ndar

ds th

at c

urre

ntly

trea

t ‘A

-’ ra

tings

from

all

agen

cies

the

sam

e

11

Fitc

h w

hite

pap

er re

visit

ed

Fo

ur a

reas

with

unq

uest

iona

ble

com

para

bilit

y is

sues

at ‘

A-’

N

ewly

form

ed (r

e)in

sure

rs

Hig

h co

untry

risk

/low

sov

erei

gn ra

tings

C

aptiv

es

Sm

alle

r siz

ed in

sure

rs

In

thes

e ca

ses,

AM

Bes

t ofte

n as

sign

s ‘A

-’ IF

S ra

tings

whe

n Fi

tch

wou

ld ra

te in

the

‘BB

B’ r

ange

12

Fitc

h w

hite

pap

er re

visit

ed

D

iven

by b

oth

crite

ria a

nd ra

ting

scal

e di

ffere

nces

A

M B

est’s

crit

eria

wei

ghs

certa

in ri

sks

in a

ver

y di

ffere

nt m

anne

r tha

n Fi

tch

(as

wel

l as

Moo

dy’s

and

S&

P)

Fo

r exa

mpl

e, F

itch

will

con

stra

in ra

tings

for s

tart-

up a

nd s

over

eign

risk

s, w

hich

we

view

as

mat

eria

l, an

d A

M B

est c

onsi

ders

less

mat

eria

l

A

M B

est’s

Fin

anci

al S

treng

th R

atin

g (F

SR

)* s

cale

is d

iffer

ent,

and

has

few

er

cate

gorie

s

Th

us, c

erta

in A

M B

est r

atin

g ca

tego

ries,

incl

udin

g ‘A

-’, a

re n

atur

ally

“lar

ger”

* Not

e: F

SR

and

IFS

are

inte

rcha

ngea

ble

term

s

13

Fitc

h w

hite

pap

er re

visit

ed

W

e al

so e

xam

ined

diff

eren

ces

in h

isto

ric s

tatis

tical

ratin

gs p

erfo

rman

ce

Fi

tch,

S&

P an

d M

oody

’s h

ave

very

sim

ilar p

erfo

rman

ce

A

M B

est’s

per

form

ance

app

ears

to b

e le

ss fa

vora

ble

at ‘A

-’

In

fairn

ess,

par

t of r

easo

n is

diff

eren

t mea

sure

men

t met

hod,

as

AM

Bes

t rep

orts

im

pairm

ent r

ates

and

the

othe

r age

ncie

s re

port

defa

ult r

ates

14

Fitc

h w

hite

pap

er re

visit

ed

A

M B

est 1

0-ye

ar im

pairm

ent r

ate

at ‘A

-’ is

6.7

%

Fi

tch

10-y

ear d

efau

lt ra

te a

t ‘A

-’ is

2.0

%

A

6.7%

impa

irmen

t rat

e m

ost c

lose

ly a

ligns

with

Fitc

h’s

‘BB

B’ I

FS r

atin

g de

faul

t ra

te

“…Fi

tch

reco

gniz

es im

pairm

ents

are

exp

ecte

d to

occ

ur a

t a h

ighe

r fre

quen

cy th

an d

efau

lts.

How

ever

, Fitc

h al

so b

elie

ves

the

note

d di

ffere

nces

at ‘

A-’

falls

out

side

nor

mal

impa

irmen

t ve

rsus

def

ault

expe

ctat

ions

. Non

ethe

less

, rea

ders

are

cau

tione

d to

kee

p th

e di

ffere

nces

be

twee

n im

pairm

ents

and

def

aults

in m

ind

whe

n dr

awin

g th

eir o

wn

conc

lusi

ons.

”

15

Insu

ranc

e Jo

urna

l Sur

vey

Less

than

one

qua

rter

of r

espo

nden

ts fe

lt an

‘A-’

from

A.M

. Be

st a

nd F

itch

wer

e co

mpa

rabl

e.

Sou

rce:

Insu

ranc

e Jo

urna

l –27

Sep

tem

ber 2

016

16

NAI

C Re

insu

ranc

e (E

) Tas

k Fo

rce

2016

Sum

mer

Nat

iona

l Mee

ting

–27

Aug

ust 2

016

Rei

nsur

ance

(E) T

ask

Forc

e di

scus

sed

Fitc

h W

hite

Pap

er o

n IF

S R

atin

g C

ompa

rabi

lity

“The

Tas

k Fo

rce

note

d th

at th

e is

sue

will

be

revi

ewed

in g

reat

er d

etai

l dur

ing

the

next

eva

luat

ion

of th

e ap

prop

riate

am

ount

of c

olla

tera

l tha

t sh

ould

be

post

ed fo

r cer

tifie

d re

insu

rers

.”

17

Fitc

h R

atin

gs’ c

redi

t rat

ings

rely

on

fact

ual i

nfor

mat

ion

rece

ived

from

issu

ers

and

othe

r sou

rces

.Fi

tch

Rat

ings

can

not e

nsur

e th

at a

ll su

ch in

form

atio

n w

ill be

acc

urat

e an

d co

mpl

ete.

Fur

ther

, rat

ings

are

inhe

rent

ly fo

rwar

d-lo

okin

g, e

mbo

dy

assu

mpt

ions

and

pre

dict

ions

that

by

thei

r nat

ure

cann

ot b

e ve

rifie

d as

fact

s, a

nd c

an b

e af

fect

ed b

y fu

ture

eve

nts

or c

ondi

tions

that

wer

e no

t an

ticip

ated

at t

he ti

me

a ra

ting

was

issu

ed o

r affi

rmed

.Th

e in

form

atio

n in

this

pre

sent

atio

n is

pro

vide

d “a

s is

” with

out a

ny re

pres

enta

tion

or w

arra

nty.

A F

itch

Rat

ings

cre

dit r

atin

g is

an

opin

ion

as to

the

cred

itwor

thin

ess

of a

sec

urity

and

doe

s no

t add

ress

the

risk

of lo

ss d

ue to

risk

s ot

her t

han

cred

it ris

k, u

nles

s su

ch ri

sk is

spec

ifica

lly m

entio

ned.

A

Fitc

h R

atin

gs re

port

is n

ot a

sub

stitu

te fo

r inf

orm

atio

n pr

ovid

ed to

inve

stor

s by

the

issu

er a

nd it

s ag

ents

in c

onne

ctio

n w

ith a

sale

of s

ecur

ities

.R

atin

gs m

ay b

e ch

ange

d or

with

draw

n at

any

tim

e fo

r any

reas

on in

the

sole

dis

cret

ion

of F

itch

Rat

ings

. The

age

ncy

does

not

pro

vide

inve

stm

ent

advi

ce o

f any

sor

t. R

atin

gs a

re n

ot a

reco

mm

enda

tion

to b

uy, s

ell,

or h

old

any

secu

rity.

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