Introduction
The key to doing business today is to build internal capabilities and partner with other key industry leaders while maintaining financial strength. In addition to enhancing product and service capabilities, our strategic relationships with strong insurers help ensure our financial stability - important to individual policyholders, group clients, regulators, and our leadership.
Financial strength of an insurer is often an important evaluation criterion for a large employer deciding to award a group plan providing for the welfare of employees and dependents.
North Carolina Mutual Life Insurance Company (NCML) prepared this paper to highlight the quality of our financial position and business strategies.
Capital Adequacy
The quality of surplus held by a life insurance company is a strong indicator of its financial health. Two key metrics used to evaluate a life insurance company’s surplus are the A. M. Best Capital Adequacy Ratio (BCAR) and the Risk Based Capital (RBC) level. For NCML in 2006, the BCAR and RBC levels are 114% and 298%, respectively.
A Financial Strength Rating of B has been assigned to NCML by A. M. Best. The BCAR used by A.M. Best in evaluating a company’s balance sheet strength compares the adjusted surplus relative to the required capital necessary to support its operating and investment risks. Companies that generate a BCAR of over 100% will generally carry a Secure rating.
Risk Based Capital models use different formulas to reflect differences in the economic environments facing insurance organizations. The common risks identified and assessed in the NAIC models include Asset Risk, Credit Risk, Underwriting Risk, and Business Risk.
The Risk Based Capital formula methodology establishes a minimum capital level that is compared to a company’s actual capital level. A company reporting an RBC ratio of 200% or more is a “no action” level company, meaning no remedial steps are needed to be done by regulators.
The following chart shows the adequacy of capital for NCML based on the BCAR and RBC metrics.
Capital Adequacy Graph
Strategic Business Partners
Our unique relationship with Minnesota Life is an example of a strategic partnership that better serves our group customers. Through this alliance, we jointly market to national employers with two thousand or more employees, and may offer group life coverage on both NCML and Minnesota Life policies. This alliance yields like benefits, like costs, and consolidated administration.
We determine which segment receives either NCML or Minnesota Life policies based on the demographics of the employees, the needs and objectives of the employer sponsor, and the specific strengths of each partner. This innovative approach
- Allows NCML to present a national group life program to potential clients
- Gives NCML a strong risk sharing partner
- Gives Minnesota Life an additional source of distribution and premium
- Assists employer groups in meeting their minority spending goals.
Risk Management
NCML uses several approaches to control and mitigate risk for direct written business and for reinsurance assumed from other Life carriers.
A key element of our risk management philosophy is the monitoring of performance by individual cases and blocks of business to ensure both pricing adequacy and an appropriate level of risk sharing that is consistent with our risk appetite.
Another key element of our risk management philosophy is the use of strong reinsurance partners to share insurance risk. When we determine the appropriate level of risk sharing, we can engage Minnesota Life or other carriers. Other key strategic risk-sharing carrier partners are: London Life, TransAtlantic, Swiss Re, Platinum Re, Hartford, and UnitedHealthcare.
These business partners have enabled us to grow our presence in the group market while preserving a conservative financial profile. The following graph shows the Net and Ceded premiums (totaling Gross premiums) and Net income of the employer market at NCML. This demonstrates the extent of reinsurance used for risk management of this business.
Employer market - premium / income GRAPH
Strategic Plans
Although NCML has a long history of serving individual policyholders, the strategic plans for growth and financial strength depend on the volume and profits associated with group insurance along with individual insurance. The following graph, which shows the growth of Gross premium, illustrates the importance of group business to our success.
gROSS pREMIUM BY mARKET GRAPH
Strategic Plans
Although NCML has a long history of serving individual policyholders, our strategic plans for growth and financial strength depend on the volume and profits associated with group insurance along with individual insurance. The following graph illustrates the importance of group business to our success.
Group Business Summary
NCML recognizes that great service organizations possess superior human capital, and we have made a demonstrated effort to develop capabilities throughout the organization. Since 2004, a number of key senior and middle management positions within actuarial services, finance and accounting, information systems and technology, marketing and distribution, and corporate compliance have been successfully recruited.
NCML Group Strategy Requisites:
- We continue to nurture and grow business relationships to expand product and service offerings and to better meet the needs of our clients.
- We are committed to a collaborative approach to address employee benefits issues with a high degree of sensitivity and responsiveness.
- We understand the advantages of partnerships that bring together diverse sets of skills and capabilities to achieve shared goals of member satisfaction and security.