SAA s Structured Peer Group Analysis
Bonds Rated BBB*/Surplus This chart indicates your company s fixed income exposure to BBB rated bonds relative to your peers. Companies tend to increase BBB allocations when seeking greater investment income or future returns
Corporate Bond Average Maturity (Years) This chart displays what your company s average maturity is for each credit rating bucket relative to your peers within your corporate bond allocation. This is a measurement in years for how long it takes for the price of a bond to be repaid by its internal cash flows (coupons and principal repayment at maturity). Bonds with higher maturities carry more interest rate risk and have higher price volatility. Combining more interest rate risk with a lower credit profile could also be a concern.
Corporate Bond Rating Allocation This chart indicates your company s allocation to corporate bonds broken down by credit rating category relative to your peers. Corporate bonds are typically higher risk than government bonds which typically leads to higher yields. The lower an issuer s credit quality, the more costly it becomes to issue debt due to its increased chances of default.
High Yield*/Surplus This chart indicates your company s allocation to NAIC rated bonds 3 to 6 relative to your peers. High Yield bonds carry a higher risk of default; however, these bonds pay a higher yield than investment grade bonds.
Common Stock/Surplus This chart indicates your company s common stock allocation relative to your peers. Common stocks typically offer greater returns than bonds but carry higher risk of loss as well as increased return volatility. If your portfolio holds a large percentage of surplus in common stocks and stocks suffer significant losses (e.g. 2008), your surplus position could be materially impacted.
Risk Assets*/Surplus This chart broadly indicates your company s allocation to "risk assets" relative to your peers. Risk assets typically consist of High Yield bonds, Common Stock, Preferred Stock, and long-term Schedule Ba investments which may include a number of other asset classes (real estate, hedge funds etc.). Since returns are not guaranteed, an increase in your risk asset bucket over time should be yielding you an appropriate increase in return. If your company is in a lower quartile, it is important to consider if any added benefits could be gained from your portfolio adjusted for risk.
Operating Leverage* This ratio measures a company s net retained premium in relation to its surplus. This ratio measures the company s exposure to pricing errors in its current book of business. A company should demonstrate a controlled business growth with quality surplus growth from strong internal capital generation. It is also important to look at your company s operating leverage in conjunction with the risk profile of your investment portfolio. With lower operating leverage, one may be able to take on more investment risk.
Financial Leverage* This chart indicates the total liabilities to surplus relative to your company s peers. This measures a company s exposure to unpaid obligations, unearned premiums, and exposure to reserving errors.
APPENDIX 48
SAA Principals Bios Alton Cogert, President & CEO Alton R. Cogert, CFA, CPA, CAIA, CGMA, President and Chief Executive Officer. Mr. Cogert formed Strategic Asset Alliance in 1994. Mr. Cogert has written several articles for BestWeek, including: Piercing the Seven Deadly Myths of Insurance Investing, Achieving Higher Risk Adjusted Returns, Outside Money Managers Performance Depends Upon How Well They re Managed, The Search for a Truly Customized Investment Benchmark, and The Roller Coaster Ride Of Interest Rates: How To Protect Against Falling Off The Track. Phone: (360) 255-2500 Email: acogert@saai.com He has served as a technical advisor to the NAIC Invested Assets Working Group. He is a former member of the Board of Directors and former chairman of the Investment Committee of the National Alliance of Life Companies. He has been a guest lecturer at the University of Texas, and is editor of Insurer Investment Strategies. Prior to SAA, Mr. Cogert accumulated more than twenty years of financial institution experience, including over ten years experience in senior financial management. He is a Chartered Financial Analyst, a Certified Public Accountant and a Chartered Alternative Investment Analyst. Mr. Cogert holds a BS from the Wharton School of the University of Pennsylvania and an MBA from the University of Southern California. 49
SAA Principals Bios Daniel Smereck, Managing Director Daniel G. Smereck, Managing Director, is the primary consultant for SAA's governmental risk pooling clients. Mr. Smereck has over twenty years of experience across investments, insurance, corporate finance, statistical analysis, and information technology. Phone: (215) 801-4275 Email: dsmereck@saai.com Prior to joining Strategic Asset Alliance in 2003, Mr. Smereck was Senior Vice President and Chief Investment/Information Officer for a large, regional medical malpractice insurer where he was responsible for treasury, asset management and information technology. Mr. Smereck has a BS in Managerial Finance, an MBA from the University of Nevada, Las Vegas, and an MS in Finance from the Carroll School of Management, Boston College. 50
SAA Principals Bios John Mohr, Managing Director John P. Mohr, CFA, CAIA, Managing Director, has over twenty-five years of experience in the insurance and insurance asset management fields. Prior to joining Strategic Asset Alliance, Mr. Mohr was Senior Vice President and Client Portfolio Manager at Boston-based fixed income investment manager Income Research + Management (IR+M), where he worked primarily with the firm s clients in the health and property & casualty insurance sectors. Prior to joining IR+M, Mr. Mohr worked as a Client Relationship Manager in the Financial Institutions group at Goldman Sachs Asset Management. Phone: (774) 343-5166 Email: jmohr@saai.com Prior to joining the asset management side of the business, Mr. Mohr was Director of Investments at Blue Cross Blue Shield of Massachusetts and worked in a number of finance-oriented positions at Arbella Mutual Insurance Company. Mr. Mohr is a graduate of Stonehill College and has an MBA from Suffolk University. He holds the Chartered Financial Analyst (CFA) and Chartered Alternative Investment Analyst (CAIA) charters. 51
SAA Principals Bios Mike Koetters, Managing Director Michael C. Koetters, CPA, Managing Director, previously retired as Vice President and Chief Investment Officer of Anthem, Inc., after 12 years of service. Anthem, a licensee of Blue Cross and Blue Shield Association, is a publicly traded company on the NYSE and provides health care administration for some 37 million members. Prior to joining Anthem, he was Vice President and Chief Financial Officer for Cincinnati Microwave, Inc., a publicly traded NASDAQ company. CMI was a direct marketer and manufacturer of consumer electronics. Prior to that, Mr. Koetters was Vice President and Treasure of Armco Leasing, Inc. and Vice President and Treasurer of Armco Insurance Companies, Inc. Both of these companies were subsidiaries of Armco, Inc. a worldwide manufactures of steel, oil and aerospace products and provider of financial services. Phone: (513) 340-2692 Email: mkoetters@saai.com Mr. Koetters is a graduate of the University of Notre Dame and has a MBA from Xavier University. He served in the United States Army Finance Corp as Lieutenant. He held teaching positions at both Miami University and Sinclair College. He is a member of the American Institute of Certified Public Accountants and a member of the Charter Financial Analyst Institute. He has served or is serving on community and corporate boards: Boy Scouts of America, American Red Cross, National Chapter of Multiple Sclerosis, DCL Medical Laboratories, Inc., Ohio Bureau of Workers Compensation and Bethesda, Inc. a Cincinnati Hospital network. 52