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Setting the Standard African Insurance Organisation Credit Assessment Programme Progress Report.

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Presentation on theme: "Setting the Standard African Insurance Organisation Credit Assessment Programme Progress Report."— Presentation transcript:

1 Setting the Standard African Insurance Organisation Credit Assessment Programme Progress Report

2 Setting the Standard Agenda: Objectives of programme Summary of CAC and terms of reference Assessment scales and nomenclature Assessment findings and observations Communication of AIO ranking assessments Extension of programme Next meeting

3 Setting the Standard AIO credit assessment objectives: Develop explicit and unique AIO credit assessment rankings for its members Increase the financial strength and security of the African insurance industry Facilitate the exchange of insurance business within Africa Further the understanding of credit assessment and allied financial and regulatory disciplines

4 Setting the Standard AIO credit assessment summary: The scheme is totally voluntary – withdrawal or deferment is wholly acceptable at any time. 15 companies have published their AIO credit assessments to date. Stage I participants - 9 companies Stage II participants - 4 companies Stage III participants -2 companies

5 Setting the Standard AIO credit ranking scale: Non-note NR Non-rated Faible E Weak Passable D Marginal Assez bien -C + Adequate Bien -B + Strong Très bien -A+ Very strong Description AIO Scale

6 Setting the Standard AIO insurer assessments:

7 Successful insurers and value added: Shareholders Growth Profitability Regulators Security Efficiency Reinsurers Counter-parties Markets Policyholders Value for money Security AIO Assessments

8 Setting the Standard Feed back from participants: External benefits: Independent statement of security Consistent benchmarks against pan-African norms Consistent with international rating principles Internal benefits: Full diagnostic facility & priority setting Structured risk analysis – risk based capital Explicit internal management tool Concerns: African market comparability & local advantage

9 Setting the Standard Basic analytical processes: Standardisation of accounting conventions Adjustment of asset/liability values eg market values, treatment of general reserves Consider group issues if applicable eg Life operations, parental structures Application of haircuts eg charges for trade debt over 90 days Calculation of standard ratios eg o/s claims to NEP, solvency ratio etc Evaluation of ratios against model values Calculation of final weighted score

10 Setting the Standard Advantage of model approach: Consistent set of benchmarks and calculations Based on wide observation of European c 650 insurers over 10+ years Assists development of unique model for African application comparable with European equivalent Explicit logic base – clear assessment rationales Clear link with diagnostics for management and priorities Facilitates comparability – fairness of assessment Assists with market and sector portfolio reviews

11 Setting the Standard CAC portfolio observations: Underwriting: Rate of GWP growth 1% pa – range (15)% - 90% R/I usage 23% & declining use of reinsurance Relatively strong solvency – c 104% NWP/Sh Funds Predominantly short tail classes of business Strong u/w results – average combined ratio 94% Good liquidity – average o/s claims to liquid assets 81% but a wide range of individual ratios Strong profitability - average return on Sh Funds 22% but a wide range of individual ratios Asset hair cuts equivalent to c 30% of Sh Funds

12 Setting the Standard CAC portfolio observations: Balance sheet & investments: Sh Funds US$ 250 m –diverse size range US$ 2-77 m Annual cash flow – US$ +54 m Total value investments – US$ 710 m Bonds60% Cash20% Property10% Affiliates 8% Equities 2%

13 Setting the Standard Developing the methodology: 1.Completion of first portfolio review 2.Changes in model to reduce judgemental over-rides 3.Consideration and testing of new issues eg net retained single risk limits 4.Managing and communicating criteria changes 5.Developing default and migration studies

14 Setting the Standard Methodological issues: All expenses to be charged against underwriting Inclusion of full gross underwriting information Availability of cash-flow information Examination of run-off claims statistics Consider capping single assets to 25% of total investments – limit likely to decrease in future Consider additional hair-cuts of Sh Funds for connected parties

15 Setting the Standard Insurance & banking groups – connected entities: Banking Company Banking Company Insurance Company Insurance Company Loans Equity holdings Deposits AIO C AIO B Credit issues:- Limits on asset admissibility Excessive concentration risk Determination of connected parties Credit dependency Capital being used twice Equalised assessments

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