Certificate In Insurance Company Analysis

The overall goal of this five-day certificate program is to give participants with limited exposure to insurance company financial statements and markets a systematic approach to analyze the credit risk and financial strength of life, non-life and reinsurance companies. 

Key Learning Outcomes:

• Distinguish the risks inherent in the main products offered by life, non-life (P&C) and reinsurance companies and recognize how these are reflected in the financial statements
• Understand the key components of an insurance company’s income statement and balance sheet
• Calculate and apply some basic ratios to quantify an insurance company’s financial strength, performance and risk profile relative to Fitch Ratings financial ratio benchmarks
• Apply a structured approach to identify key risks and mitigants when transacting with insurance and reinsurance companies, and to appreciate the main methods of capital-raising by insurers
• Appreciate how economic, competitive and regulatory issues impact the risk profile, performance and financial health of an insurance company
• Understand the business and financial risks inherent in the life and non-life insurance and reinsurance industries
• Use qualitative and quantitative analysis to distinguish strong and weak performers and to detect early warning signals of deteriorating financial strength

Online Assessment:

• Following the programme participants will be given a secure link to the course assessment page. The assessment consists of an untimed multiple choice test where they will be called upon to demonstrate some of the knowledge and skills that they have learnt on the five-day programme.

Who Should Attend:

• The course is suitable for equity, fixed income and credit analysts, insurance company treasury offers 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 employees, and corporate communications officers.

Content:

• Day One
• Insurance Market Overview
• Understand the characteristics of the various lines of business and insurance products and their inherent risks.
• Types of insurance company
• Life, non-life and reinsurance
• Types of insurance entity: Mutual vs. proprietary, multi-line vs. monoline, underwriters vs. brokers, captive insurers
• Key activities and products
• Non-life products: Short tail and long tail lines; degrees of riskiness
• Life and investment products: Whole life, annuity, endowment, term insurance and health products
• Investment bases for life products: Fixed (stable value), unit-linked (variable), with profits, interest-sensitive
• Reinsurance products: Proportional vs. non-proportional, excess of loss and catastrophe covers
• Day Two
• Statement Logic
• Understand the key financial items in insurance company financial statements and how the business model is reflected in the balance sheet.
• Relating the business to the balance sheet and income statement
• Key items of the balance sheet and income statement for life and non-life insurers
• Premium accounting: gross vs. net, written vs. earned
• Claim/loss accounting (non-life): Claims incurred vs. paid, claims incurred but not reported (IBNR)
• Claim/benefit accounting (life): Benefits and surrenders, annual and final bonuses
• Technical provisions: Loss provisions, unearned premium provisions, mathematical provisions
• Investment reserves – capital or liability? Fund for Future Appropriations, RfB, Unallocated Divisible Surplus, Discretionary Participation Features (DPF)
• Intangible and other assets: Deferred acquisition costs, value of business acquired
• Impact of reinsurance on assets, liabilities, premiums and claims
• Calendar year, accident year and underwriting year reporting for non-life; loss development triangles
• Ratio Analysis
• Introduction to the basic analysis of insurance companies using some key ratios from the financial statements.
• Key performance indicators for life, non-life and reinsurance companies, with benchmarks
• Underwriting risk: Claims/loss ratio, expense and combined ratio and other basic indicators of underwriting performance, loss provision adequacy and reinsurance risk
• Investment risk: Market and credit risk
• Measuring life new business growth and new business profitability
• Measures of overall profitability for life and non-life insurers
• Capital adequacy: Types of capital and ratios used to measure financial leverage (gearing) and solvency
• Day Three
• Analytic Overview
• A structured approach to the credit analysis of insurance and reinsurance companies, why and how they borrow and the risks to serving debt and equity capital. 
• 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
• 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.
• 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
• Competitive factors: Market fragmentation; penetration levels in emerging vs. mature markets
• Regulation and supervision
• Overview of EU Solvency II regulation; Solvency II, Pillar 3 Solvency and Financial Condition Reports
• SII group supervision, group solvency and equivalence
• Day Four
• 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 income statement and balance sheet
• Key accounting standards for insurers: key differences between European GAAP and IFRS 4, including overview of IFRS 17 insurance contracts and IFRS 9 hedge accounting for insurers
• Items subject to management expert judgement: write-downs, IFRS Fair Value hierarchy, temporary and permanent impairments, provisions 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, combined and operating ratios
• Non-life provision adequacy: Loss development triangles, calendar year vs. accident year analysis, survival ratios
• Catastrophe and reinsurance risk: Degree of reinsurance utilisation; adequacy of reinsurance cover, credit and dispute risk
• Day Five
• Financial Fundamentals (continued)
• 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 realised and unrealised gains and losses, investment return requirements of the life and non-life insurance businesses
• Life insurance risks: Persistency, mortality and expenses
• Performance measurement
• Diversity and stability of income: Profitability measures and benchmarks
• Embedded value techniques for measuring and analysing life profitability, profit margins on new business
• 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