Insurance Company Analysis

Fitch Learning
Training overview
3 days
3,895 USD, 2,895 GBP
English
Classroom / Public
Next start date: 12/4/2019 - London
Start dates
London
12/4/2019   (English)
2,895 GBP
Dubai
12/10/2019   (English)
2,895 GBP
New York City
12/11/2019   (English)
3,895 USD

Course description

Insurance Company Analysis

The overall goal of this three-day, intermediate course is to provide a systematic approach to the credit risk and financial strength analysis of life insurance, non-life insurance and reinsurance companies.

This course gives 24 CPD hours.

Who should attend?

  • Equity, fixed income and credit analysts
  • Insurance company treasury officers and staff
  • Insurance brokers and security analysts
  • Investment managers
  • Commercial and investment bankers
  • Bank risk, portfolio and relationship managers
  • Supervisors
  • Lawyers
  • Insurance company public relations
  • Corporate communications officers

Training Content

Day One

Analytic Overview

A structured approach to the credit analysis of insurance and reinsurance companies and an overview of how insurance companies are assessed by different market observers – Supervisors, Ratings Agencies, Debt and Equity investors.

  • Purpose/payback model: A structured approach to credit analysis and its applicability to insurance and reinsurance companies; why insurance companies borrow/issue debt (Purpose) and how it is repaid (Payback); double leverage
  • Case study: Evaluating payback sources for a major international insurance group
  • Insurance ratings: Insurer Financial Strength and credit ratings, rating of group members, derivation of various “issue ratings” from the issuer’s Insurance Financial Strength rating; PD and LGD
  • Use of debt and equity market indicators to highlight possible concerns
  • Exercise: Using capital market data to identify insurers which are in or out of favor with investors

Operating Environment

A review of the key macro-economic, regulatory and sector trends which may impact adversely or favorably on certain insurers and business lines, and a look back at how the life, non-life and reinsurance sectors have previously been affected by stressed operating conditions.

Macroeconomic and sector issues
  • Investment cycles: Stock, property and credit market levels and their volatility
  • Causes of recent fluctuations in strength of the life, non-life and reinsurance sectors
  • Underwriting cycles in various markets
  • Mortality, morbidity and longevity trends
  • Climate change; trends in insured losses from catastrophes
  • Impact of inflation and cultural changes in litigation
  • Non-life reserving issues: Redundancy or deficiency; asbestosis and environmental liabilities
  • Competitive factors: Market fragmentation; penetration levels in emerging vs. mature markets
  • Exercise: Historic and prospective impact of the operating environment on life and non-life insurers and reinsurers
Regulation and supervision
  • Overview of EU Solvency II and US Risk Based Capital regulation; Solvency II, Pillar 3 Solvency and Financial Condition Reports
  • SII group supervision, solvency and equivalence
  • Global Systemically Important Insurers (GSIIs)

Day Two

Financial Fundamentals

The derivation from the financial statements of key indicators for assessing financial strength and performance of life and non-life insurers against appropriate benchmarks.

Statement logic
  • Review of key items in financial statements
  • Key accounting methods and uses: supervisory returns, embedded value reporting for life companies, GAAP, IFRS (including overview of IFRS 17 insurance contracts and IFRS 9 hedge accounting for insurers)
  • Items subject to management discretion: write-downs, IFRS Fair Value hierarchy, temporary and permanent impairments, reserving for IBNR claims (non-life) and for investment guarantees (life)
Business risk
  • Underwriting risk: Assessing the quality and diversity of the underwriting portfolio, loss, expense and combined ratios
  • Non-life reserve adequacy: Loss reserve development triangles, calendar year vs. accident year analysis, survival ratios etc.
  • Catastrophe and reinsurance risk: Degree of reinsurance utilization; adequacy of reinsurance cover, credit and dispute risk
  • Case study: Assessing underwriting risk for an international composite insurance company
  • Investment risk: Quality and liquidity of the investment portfolio, asset and liability matching, cost of investment guarantees, use of derivatives for hedging, concentration risks; Asset Liability Management stress testing disclosures
    • Investment returns: Inclusion of realized and unrealized gains and losses, investment return requirements of the life and non-life insurance businesses
    • Life insurance risks: Persistency, mortality and expenses
    • Case study: Assessing investment risk for an international composite insurance company

Day Three

Financial Fundamentals (continued)

Performance measurement
  • Diversity and stability of income: Profitability measures and benchmarks
  • Embedded value techniques for measuring and analyzing life profitability, profit margins on new business, European Embedded Value (EEV) and Market-Consistent Embedded Value (MCEV), key assumptions
Financial risk
  • Liquidity: Operating cash flow, liquidity of investments, liquidity shocks
  • Capital adequacy: Regulatory solvency coverage; stress testing; quality and fungibility of capital; tangible vs. intangible capital; non-risk-based capital measures: operating leverage, asset and liability leverage
  • Financial leverage, interest cover, use of hybrid capital, refinancing risk, debt servicing ability, total commitments including off-balance sheet
  • Case study: Assessing Financial Risk – leverage, solvency and liquidity – for an international composite insurance company
  • Exercise: Key financial indicators for strong and weak life companies

Management and Early Warning Signals

A structured approach to assessing management; implications of the ownership structure; and early warning signals of credit deterioration.

Management
  • Significance of ownership: Mutual, public, state and private companies
  • Framework for assessing management, strategy and governance risk
Early warning signals
  • Recognizing financial and non-financial indicators of distress
  • Accounting discrepancies: Areas to check and questions to ask
  • Case study: A well-rated non-life insurer which failed. Quantitative and qualitative signs of weakness

Structure

Review of the funding needs of insurance companies, how these might be met, and the potential risk mitigants for counterparties.

  • Hybrid capital securities: Structure and type of capital issued; impact on credit standing and other concerns; regulatory and rating agency tolerances for hybrid capital
  • Insurance-linked securities: Securitization of catastrophe risks and of embedded value; use of Insurance SPVs and sidecars; longevity risk mitigation
  • Case study: Maximum hybrid debt issuance to obtain rating agency equity credit
  • Capital structure: Creditor vs. policyholder rights and the impact of debt issue ranking and structure
  • Exercise: Recovery prospects for different insurance issues and issuers

About Fitch Learning

Fitch Learning - Financial Training in the Americas

Fitch Learning

Part of the Fitch Group, Fitch Learning partners with clients to enhance knowledge, skills and conduct. With centers in London, New York, Singapore, Dubai and Hong Kong, we are committed to questioning and understanding client needs across the globe and...


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Reviews

David Durkin
(4)
I found the information and topics discussed to be very relevant to the current insurance company landscape
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