Ratings Recap: GIG-Egypt, Univé Her, Infrassure

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Arab Misr Insurance Group S.A.E. (GIG-Egypt), both with negative outlooks. “The ratings of GIG-Egypt benefit from its sound domestic franchise, strong risk-adjusted capitalization, good track record of technical and overall profitability and its position within Gulf Insurance Company, K.S.C. (GIC),” said Best. However, Best noted that the “country risk associated with Egypt remains a drag on GIG-Egypt’s ratings, particularly given that all of its business is generated from and all assets are domiciled within the country. Egypt’s country risk is considered to be heightened at present, which is reflected in the negative outlook on the ratings.” Best’s report indicated that the Egyptian insurance market “remains dominated by the public sector, which holds a market share of roughly 54 percent., 3.4 percentage points less than in 2011. The remaining private sector companies remain fairly small; however, GIG-Egypt’s profile is considered to be sound and improving. The company currently ranks as the second-largest private sector insurer with an overall market share of 5 percent (4.6 percent in 2011) and almost 11 percent share of private sector business.” Best added that “GIG-Egypt’s risk-adjusted capitalization is considered to be strong and continues to improve as profit retentions outpace capital consumption on a risk-adjusted basis.” Best noted that GIG-Egypt “has applied higher asset risk charges to its investment portfolio in line with the recent change in Best’s methodology. The company’s investment portfolio consists only of Egyptian assets, which are subject to the highest asset charges in the Best’s Capital Adequacy Ratio (BCAR) model. However, GIG-Egypt has comfortably absorbed the increased charges.” Best also described GIG-Egypt’s technical performance as having “seen a marked improvement over the past four years under the new management team. The company has generated combined ratios below 90 percent in each of the last four years, and it fell below 80 percent in 2012.” In Best’s opinion, “management has demonstrated its ability to navigate the company through what are considered to be exceptional conditions.” Best currently ranks Egypt in Country Risk Tier Five (CRT-5) given its perceived “high” economic and financial risks and “very high” political risk. All of GIG-Egypt’s business is generated locally, and its investment portfolio is highly concentrated in Egyptian government debt.” This is” of particular concern” for Best as it points out that the notes date of “maturity of the fixed income investments is less than 12 months for the vast majority of the portfolio.” Best said: GIG-Egypt’s ratings benefit from the support of its parent, GIC, which has begun to implement a group-wide enterprise risk management framework. Furthermore, the centralization of some departmental functions, the brand harmonization and the group-wide reinsurance treaty that has been negotiated by GIC all support Best’s opinion that parental support is likely to be forthcoming in the event of a crisis. Best said it is “currently monitoring the economic and political situation in Egypt carefully and expects such external factors to be the likely drivers of any future rating movements, either negative or positive.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Netherlands-based N.V. Univé Her, both with stable outlooks. Best said the ratings “reflect Univé Her’s excellent risk-adjusted capitalization, solid operating performance and good business profile as a specialist insurer within its domestic market.” As offsetting factors Best cited “Univé Her’s limited client base that is restricted to the 19 Dutch mutual property insurers, which ultimately own and govern the company. Consequently, geographical and business line diversification remains limited. In September 2012, Univé Stormher (the company’s affiliate) merged into Univé Her. The merged company was subsequently transformed into a limited company and is 100 percent owned by Coöperatie Univé U.A., a mutual holding company with the Univé insureds as members. The merged company became active retrospectively from 1 January 2012. As a result of Univé Her’s restructuring in 2012, the members’ account, which acted similarly to subordinated debt and could be used if the company experienced financial difficulties, was repatriated to Univé Her’s former mutual owner members. Nevertheless, Univé Her’s risk-adjusted capitalization remains excellent, enhanced by a catastrophe reserve (€23.7 million [$31 million] at year-end 2012), which was previously included on Univé Stormher’s balance sheet. The catastrophe reserve is similar to a technical loss reserve and can be utilized if the company experiences large catastrophe losses.” Best also indicated that Univé Her is “supported by favorable claims activity, and is expected to report a solid technical profit of approximately €3.9 million [$5.1 million] for 2012. Following the acquisition of the CAT XS portfolio from Univé Stormher, technical results are likely to be more volatile going forward. Nevertheless, Univé Her maintains an extensive reinsurance program with cover up to a one in 200 year event.” It also “maintains its specialist business profile as the sole property reinsurer for the 19 Univé property mutuals, which ultimately own the company. Although geographical and business line diversification remains limited, Univé Her benefits from a very loyal and stable customer basis. The company possesses extensive knowledge of its customers’ insurance needs and is able to offer technical support and competitive prices. Upward rating movements at this point are unlikely. Downward rating movements could be triggered by a material reduction in Univé Her’s risk-adjusted capitalization as a result of large catastrophe losses.”

A.M. Best Europe – Rating Services Limited has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit ratings of “a-” of Infrassure Ltd., which is domiciled in Switzerland, and its affiliate, Infrassure Ltd., Vaduz, Liechtenstein. The revised outlook “reflects Infrassure’s weak underwriting performance in 2012, which together with a large dividend payment has led to a material decrease in risk-adjusted capitalization,” Best explained. “In addition, as a privately held company, Infrassure’s financial flexibility remains limited. In 2012, Infrassure reported a pre-tax loss of CHF 13.0 million [$13.96 million] (prior to the transfer of CHF 7.7 million [$8.275 million] from the equalization reserve), predominantly due to large losses from Superstorm Sandy in October 2012, and significant adverse reserve development on prior year claims. Given the nature of business underwritten and Infrassure’s limited use of risk transfer, its technical performance has been volatile. The reported loss ratio of 99.1 percent in 2012 was Infrassure’s worst result in its 10-year history and was significantly above its five-year average loss ratio of 65.2 percent.” As partial offsets to the negative factors Best cited “Infrassure’s knowledge and expertise as a specialist insurer of engineering and industrial property risks. Its current ratings are supported by generally favorable technical performance over the past five years. Infrassure has implemented changes to its claims and reserve monitoring process and is progressively reducing its catastrophe exposure.” Best said it “anticipates that these actions will lead to a measured and sustained improvement in Infrassure’s risk-adjusted capitalization and technical performance. Positive rating movements are unlikely at present. Negative rating movements could occur if Infrassure is unable to demonstrate a sustained improvement in its risk-adjusted capitalization and technical performance.”

Topics Europe