Since assigning its first insurance financial strength rating in October 2016, Kroll Bond Rating Agency (KBRA) now has almost 60 published and unpublished insurance financial strength ratings and aims to double that figure by the end of the year.
Captive International spoke with Tina Bukow, managing director of business development, and Carol Pierce, senior director of insurance ratings, ahead of the Captive Insurance Companies Association annual conference, about how the ratings agency has managed to grow as quickly as it has.
“First and foremost, KBRA’s core values are: timely, transparent and accurate credit rating analysis. Transparency is key to the success of KBRA’s rating process. Companies want and deserve it and we deliver,” Bukow said.
KBRA does not use a prescriptive, capital-based model for its insurance financial strength ratings, and instead looks at the unique characteristics of a company which fosters thorough financial analysis. For example, KBRA will examine the company’s business plan and financial projections, along with its organisational structure and capital management strategies while performing its own robust stress testing.
“We look at a captive insurance company based on its business plan, its unique characteristics and why it exists, for example a good number of single parent captives are not designed to be profit centres and have different reasons for existing then a traditional company. We take that into consideration -they need to be experts in their business and that’s what we analyse,” said Pierce
In terms of captive insurance, Bukow explained that one of KBRA’s competitive advantages in this space is its expanded use of unpublished ratings, where a captive can obtain a rating to potentially help negotiate better terms with their reinsurers or other business partners, while not having to have any information made public.
“By their very nature, they are private and closely held. The team has discovered during their years of involvement in the captive industry that so many captives - whether they have private or public ownership – have expressed a desire for a financial strength rating for a variety of reasons, but do not want the distraction from their core business that publishing a rating may cause. We strive to add value to the markets we serve, and this is one way we can do that,” Bukow said.
A newly formed captive can also find it difficult to secure a rating and is often judged by the performance of its parent. Pierce added that KBRA thoroughly analyses the parent as part of the rating process, and that through KBRA’s global captive insurance methodology, a captive is treated as its own entity and can be rated higher than its parent if its intrinsic financial strength, in conjunction with appropriate safeguards, warrant.
The pipeline of new insurance ratings at KBRA - both published and unpublished - is growing every day.
“There is no doubt in my mind that by the end of this year we will have potentially doubled the number of ratings we currently have,” said Bukow.
The non-capital-based methodology has been well received by the insurance and investment communities, not only because it creates competition, but also because it offers a different approach to insurance ratings and that too adds value to all users of ratings.
“We have stirred up much excitement and interest, companies are very happy there is competition in a market where none previously existed.” said Bukow.
She added: “It’s healthy for the market to have different views on financial analysis, from one that is model driven to one that is thorough and based on fundamental financial analyses.
KBRA, CICA 2019, Ratings, Tina Bukow, Carol Pierce, Cayman