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Company Communications: Independent Third-Party Review in a Volatile Market

Company Communications: Independent Third-Party Review in a Volatile Market. Joseph Roethel, AVP, Property/Casualty Joseph Zazzera, MSFA, Life/Health A.M. Best Company March 4, 2009. Building Bridges…Beyond the Rating Meeting. Key Takeaway: Maintain an Ongoing Relationship

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Company Communications: Independent Third-Party Review in a Volatile Market

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  1. Company Communications:Independent Third-Party Review in a Volatile Market Joseph Roethel, AVP, Property/Casualty Joseph Zazzera, MSFA, Life/Health A.M. Best Company March 4, 2009

  2. Building Bridges…Beyond the Rating Meeting Key Takeaway: Maintain an Ongoing Relationship • Confidentiality & Transparency • A.M. Best is an “Insider” • Better to share information (Good, Bad, Ugly) • Potential strategic issues/decisions • Transparency is a two-way street • Our opinion • Methodology • Industry updates • Timeliness • Open communication is always important • Not only at rating meetings… • Effective & Professional • Designate a rating contact

  3. Rating Agency Meetings • What AMB expects of the company? • Balance is imperative • Positives & Negatives • Competitive advantages/challenges • Not all have viable/executable strategies to counter • What you Should Expect of Best? • Perspective • Timeline • Summary of pending items • Feedback on presentation materials

  4. Company Role Designate a Contact • Relationship leader • Responsible for review meetings • Scheduling • Content • Provide continuous flow of information • Periodic information (i.e. Mini-MD&A’s) • Address agency concerns • Coordinate review of publications • Best Insurance Reports • Press Release • Data in Special Reports

  5. Best’s Rating Process-How does it all fit? Information captured using A.M. Best’s proprietary rating forms/systems SRQ, QAR, BCAR, CAR, Pre-meeting Review, PRC Packages, Galley’s Develop comprehensivecompany database A.M. Best meets senior company executives Explore company’s strategy and future direction Develop rating recommendations

  6. Study of public data Review of internal data Initial assessment of strengths and weaknesses Set up annual review meeting Agenda and guidance Meeting package in advance The Analyst’s Role:Extensive & Exhaustive Participation Before Company Meeting At The Meeting • Assimilate and clarify info • Discussion and Q&A • Wrap up • Additional information requests • Pressure points • Advanced notice of possible rating action, outlook change, or affirmation • Initial timeline for rating conclusion • Feedback on presentation materials

  7. Quarterly & annual financial statements (Regulatory—SAP/GAAP, etc.) Stockholder/Policyholder reports SEC filings CPA Audit reports Insurance exam & Market Conduct reports MD&A reports Regulatory filings Monthly management reporting Management meetings- CEO, COO, CFO, CUO, CIO Business plan Best’s Supplemental Rating Questionnaire (SRQ) Actuarial memorandums Loss Reserve reports Cash flow testing Capital structure and plans Investment and Credit guidelines Reinsurance guidelines Other confidential documents & surveys Sources of Communication Public Private

  8. Follow-up information and/or meeting Complete analysis Peer analysis Stress test projections Recommendation to rating committee Arrive at a rating decision Communicate rating and “key drivers” Annual report update/ press release The Analyst’s Role:Extensive & Exhaustive Participation After The Meeting Ongoing • Stay fully informed • Stay in touch with company contact • Take appropriate off cycle actions • Conduct industry research • Perform competitive analysis • Maintenance of infrastructure/rating tools

  9. Rating Agency Meetings…Postmortem • Rating Notification • Independent opinion • Rating decision • Communicate to management … • Reasons behind our decision • Demonstrate a thorough understanding of the company’s operations • Best’s Insurance Report (BIR) • Revise BIR to reflect current rating • Reflect recent financial trends and operating strategy • Press release and report “galley” updates

  10. Proactive Communication • Researching changes to capital structure • Planned strategic shifts • Mergers and acquisitions • Increased litigation exposure • Soon-to-be-released unfavorable media coverage If uncertain whether a business decision or issue would impact the rating…contact your analyst

  11. Proactive Communication The Difference Incomplete Information Assumptions Facts Rating Decision

  12. SRQ Evolution

  13. Subprime Survey-Example 1

  14. Subprime Survey-Example 1

  15. Terrorism Risk - Example 2

  16. Recent Adhoc Survey Request

  17. Adhoc Survey Requests

  18. Conclusion • Open communication • Confidentiality • Transparency • Timeliness

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