A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Malaysia’s BEST RE (L) Limited, both with stable outlooks. Best noted that in addition to “BEST RE’s importance to its parent, Islamic Arab Insurance Company (Salama) (United Arab Emirates), the ratings also reflect BEST RE’s good business profile and stable historical underwriting profitability.” In addition Best notes that “BEST RE’s exposure to the extensive flooding in Thailand during 2011 is likely to have a significant impact on both the company’s profitability for the 2011 financial year and its level of risk-adjusted capitalization.” The reinsurer’s net exposure after retrocession is “likely to be somewhere between $15 million and $20 million.” Best indicated that “these losses will weaken BEST RE’s level of risk-adjusted capitalization and cause the company to report a moderate overall loss for the 2011 financial year. The ratings of BEST RE continue to reflect its significance to Salama. Furthermore, a capital injection from Salama into BEST RE of $50 million is expected before the end of the first quarter of 2012, which will significantly strengthen the company’s level of risk-adjusted capitalization.” Best indicated that the “ratings of Salama remain unchanged. Salama’s exposure to the 2011 Thai floods relates solely to its wholly owned subsidiary, BEST RE. The impact of the floods is less significant for Salama, given the company’s strong level of risk-adjusted capitalization and more diverse business profile. Best will continue to monitor the developments arising from the Thai floods and any subsequent impact that it may have on BEST RE and the group.”
A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Luxembourg-based Builders’ Credit Reinsurance Company S.A. (BCRe), the reinsurance arm of Hochtief A.G., a large Germany-based construction company. Grupo ACS (Spain) has a majority shareholding in the group. The outlook assigned to both ratings is stable. The ratings reflect BCRe’s “strong risk-adjusted capitalization and a knowledgeable and proactive in-house management team that is expected to partially mitigate the volatility inherent to its book of business based on U.S. casualty and surety lines,” Best explained. BCRe provides reinsurance cover on risks emanating from group business, predominantly in the Americas. Best noted that “this also can include subcontractors that are required to adhere to the group’s strict safety guidelines and maintain a good financial track record. The company writes workers compensation, general liability and subcontractors’ default insurance, and, to a minor extent, surety, auto liability and builders’ risk.” Best said it “expects BCRe to slowly expand its business portfolio to other regions where the group has a presence (i.e., Australia and Europe). During 2010, Contractors’ Casualty and Surety Re (CCSRe), a sister company managed by the same team, was transferred to BCRe, leading to operational efficiencies and an expectation of a more stable performance.” Best added that it “believes BCRe has a strong risk-adjusted capitalization, underpinned by a regulatory requirement of building up equalization reserves and a comprehensive reinsurance program, which is expected to remain supportive of its business plans in the coming two years. Despite a large exposure to off-balance sheet items such as letters of credit, and the potential for volatile underwriting performance, the capitalization remains sound. BCRe’s senior management team has managed to significantly grow the book of business over the past decade, focusing on overall profitability (despite the volatile nature of the business lines) and contributing toward the group’s profits. The company is also responding to the recent regulatory requirements of Solvency II by stepping up the formalization of its in-house processes and dedicating expert staff to the development of a supportive framework.”
A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” to Saudi Arabia’s Trade Union Cooperative Insurance Company (TUCI), both with stable outlooks. Best explained that the “ratings reflect TUCI’s strong level of risk-adjusted capitalization, good local business profile and excellent underwriting profitability. TUCI has a long established position in the Saudi Arabian insurance market with operations that date back to 1983. TUCI’s net insurance portfolio is in some way reflective of the larger market and concentrates on the medical and motor business lines, which accounts for approximately one-third and one-half of gross written premiums, respectively. However, TUCI’s portfolio includes many other general business lines and the company focuses on more profitable niches.” Best also indicated that “although TUCI competes against local insurers with a considerably larger market share, Best considers that the company has a good market position among the medium sized general insurers.” For the 2011 financial year, Best said it “anticipates that TUCI will write gross written premiums in excess of SAR 500 million ($133 million). Best considers TUCI’s level of risk-adjusted capitalization to be good and supportive of the company’s business plans. While targeting growth of gross written premiums in the range of 15 percent-20 percent (over the coming years) is likely to erode risk-adjusted capitalization, Best anticipates that capitalization will remain at a good level over the medium term, assisted by the development of an internal economic capital model.” Best also noted that “TUCI’s capital requirements are driven by underwriting risks, with the company maintaining a conservative investment portfolio largely focused in cash and term deposits. Supporting TUCI’s capital base is a reinsurance program of good credit quality. TUCI’s level of enterprise-wide risk management is developing and the company has dedicated significant resources to its enhancement over the past year.” For future years best said it “anticipates that TUCI will continue to strengthen and embed its risk management framework within the company. In 2011, A.M. Best anticipates that TUCI will report an overall combined ratio in the region of 85 percent and a return on equity of around 4 percent despite increasingly competitive market conditions in some business lines. Although this is a marginal deterioration from 2010, when the company achieved a combined ratio of 85.3 percent and a return of equity of 5.9 percent, it represents a stable level of financial performance and includes a one-off impact from provisioning for insurance receivables.” Best also said it “anticipates a good level of underwriting profitability over the medium term. The conservative nature of TUCI’s investment portfolio reduces potential volatility in overall earnings. However, investment returns are expected to be relatively low as a trade off, between 1 percent and 2 percent.” In Best’s opinion, TUCI “will face challenges in developing its business profile over the medium term as it competes with smaller insurers that are placing pressure on rates for commoditized products. Furthermore, some larger players in the market possess good technical experience in certain business lines and a favorable position when competing for government related business.”
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