What involvement does the Financial Conduct Authority (FCA) have in Part VII transfers and what are its current expectations? This article summarises the key points of the FCA’s approach to the review of Part VII transfers and provides perspective from Milliman’s experience of Part VII transfers.
Under a bonus malus system, motor liability insurers can adjust policyholders’ premiums based on individuals’ claims history. For instance, a customer may receive a reduction, or “bonus,” on their premium if no claim is made during the previous year. Conversely, the customer may receive a premium increase, or “malus,” if a claim is made during the previous year.
In this article, Milliman actuary Diana Dodu provides an analysis of bonus malus systems in several European countries. She highlights the similarities and differences between the system designs in each country.
Here is an excerpt:
• Countries that do not have a specific system defined by law, such as Poland, where the system is fully liberalised and insurers have the liberty to provide own risk coefficients and load back the premium to obtain balance; Estonia, where insurers can design their own rules and where it may seem that the maximum bonus can be achieved within several years of claims free driving; and Lithuania, where according to the Law on Compulsory Motor Third Party Liability Insurance effective from 17 May 2007, premiums are fixed by the insurer and companies can take into account risk factors.
• Countries where the bonus malus system is defined in the legislature, requiring insurers to take into consideration loss history, but which grant freedom to insurance companies to design their own rules, which is present in countries such as the Czech Republic and Slovakia.
• Countries that are regulated by law, such as Italy and Romania… and Hungary, where according to law NGM 21/2011, the number of classes are predefined as well as movement between classes depending on the number of accidents, and insurers are obligated to issue accident and claim certificates, but are also allowed to use historical data for the purposes of classification to calculate additional correction factors, and Serbia, where the bonus malus system is defined in the law on compulsory traffic insurance but insurers can use correction coefficients if they do not contradict the ones mandated by law.
• Countries such as Croatia, where there seems to be a defined system, but companies offer extra benefits such as additional bonuses above the maximum and protection of the bonus (after several years of no claims, insureds can pay an additional premium to protect the bonus in case they have an accident in the subsequent year), and Slovenia, where you can also protect your bonus, while the future premium in cases of protection of the bonus would depend on the number of accidents in past periods.
• Latvia, where companies can set premiums based on prior histories with a conversion system in which it seems that it is more difficult to move towards bonus classes and where the system is evaluated annually (on September 15).
The Financial Accounting Standards Board (FASB) has proposed changes to the accounting for long-duration insurance contracts in four major areas. In this paper, Milliman consultants William Hines and Karthik Yadatore summarize the FASB’s original proposal and outlines the key changes made during the re-deliberations.
For the second year in a row Milliman’s Mike Meehan was named to the Captive Review Power 50 list. “Once again I’m humbled to be listed among Captive Review’s Power 50. Over the years I have been fortunate to have collaborated with a number of the folks on this list, and am further honored to be able to call a number of these folks good friends as well,” he said.
The Power 50 is a ranked list recognizing the 50 most influential professionals in the global captive insurance industry. See the full 2017 Power 50 list here.
In December, Mike was also named Captive Insurance Person of Interest by Captive.com. He’ll be a speaker at the upcoming CICA Conference in Scottsdale, AZ, in March. For more information, click here.
A developing insurance-linked securities (ILS) market trend has resulted from the rise in non-life ILS that transfer risks outside of the natural catastrophe space. However, no particular type of “non-NatCat” deal has achieved the same widespread acceptance as NatCat deals. While non-NatCat innovation could open up enormous avenues for market expansion, flawed transactions leading to losses could give investors reason to question the stability and growth potential of the market.
These issues are complex, requiring creativity and coordination across the key participants on a non-NatCat transaction. This paper by Aaron Koch explains non-NatCat ILS. He also explores the potential types of non-NatCat transactions.
Milliman has released its latest report, 2017 Mid-Year Embedded Value Results (excl. Japan), which summarises mid-year 2017 embedded value (EV) results disclosed by Asian insurers in eight key countries. The report examines the results at a company and country level and supplements the 2016 Embedded Value Results: Asia (excl. Japan) report released in August 2017. It also includes an update of the India 2016 full-year results, not available earlier due to the market’s March financial year-end. The findings highlight an overall increase in growth of EV, increase in value of new business (VNB) and improvement in new business margins.
‘As expected, positive performances by Asian equity markets and improving yields have led to an increase in the EV of life insurers within the region,’ said Milliman principal and consulting actuary Paul Sinnott. ‘These favourable economic conditions, combined with refined product strategies and improved distribution channel productivity, continue to drive growth in life insurance premiums, margins and the overall business in Asia.’
Key findings from the report include:
• Overall, insurers have reported positive gains in their 2017 mid-year embedded values over their 2016 mid-year values, with many companies showing single-digit EV growth but some posting larger gains in Hong Kong and mainland China.
• Hong Kong and mainland China insurers continued to report significant increases in VNB in the first half of 2017 compared to the first half of 2016, with over 50% increases in VNB for several companies, primarily driven by strong new business sales.
• Nearly all operating entities reported an increase in their new business margins between the first half of 2016 and the first half of 2017, with single- or double-digit increases in new business margins for many.
• As initial public offering (IPO) activity among insurers continues in India, companies are adopting the market-consistent Indian Embedded Value methodology (which is prescribed for IPO disclosures).
A copy of the report is available for download here.