A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of United Arab Emirates-based Emirates Insurance Company P.S.C. (EIC), both with stable outlooks. “EIC’s capital position remains strong, benefiting from low underwriting leverage and a reinsurance program of good credit quality,” Best said. “Furthermore, EIC’s risk-adjusted capitalization is sufficiently strong to absorb earnings volatility generated by its investment portfolio and projected annual growth of 10 percent to 15 percent over the next two years. Capital requirements are driven by EIC’s investment profile, with equity exposure accounting for over 50 percent of total invested assets in 2012.” Best also noted that “EIC has maintained a top five position in the domestic market, with gross written premium remaining stable at AED 645 million ($176 million). In addition to its established position within the UAE, EIC is seeking diversification through facultative inward reinsurance business from the Afro-Asian territories, which is expected to be one of the main drivers of premium growth over the coming years. EIC has demonstrated a strong track record of technical profitability with combined ratios consistently below 80 percent, driven mainly by motor, property and engineering business lines. Moreover, despite a high concentration of investments geared towards equity and private investment funds, the investment yield has remained stable in the last three years at approximately 6 percent.” In conclusion Best said: “Upward rating movements are unlikely at present. Downward rating pressures could arise if there were a material decline in EIC’s rick-adjusted capitalization and/or a material deterioration in financial performance.”
A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Barbados-based BMO Reinsurance Limited (BMO Re), both with stable outlooks. “BMO Re is an indirect wholly owned subsidiary of Bank of Montreal (BMO) (Toronto, Ontario) and is a reinsurer of life, property/casualty and disability risks,” Best explained. “The ratings of BMO Re reflect its stable net income trends, favorable risk-adjusted capitalization and strong liquidity in its investment portfolio. BMO Re continues to maintain strong risk-adjusted capitalization levels, as well as low levels of credit risk within its investment portfolio, which is primarily invested in highly-rated sovereigns, supranationals and corporate bonds. Higher premium volumes have been recorded in recent periods, driven by diversification in its business mix to include both life and non-life risks.” Best also noted, however that the “company faces potential challenges associated with strengthening distribution channels and new product acceptance as it looks to further expand its business profile. Additionally, volatility in economic conditions in Europe could impact BMO Re’s ability to retrocede assumed risks to its European counterparties. BMO Re is exposed to potential earnings volatility from its assumed property/casualty risk;” however, Best added that it “anticipates a lesser degree of volatility compared to previous years. BMO Re is considered well positioned at its current rating level. Positive rating actions are unlikely in the near or intermediate term. Factors that may cause negative rating actions include a significant decline in the company’s capitalization and/or business outlook, a decline in its operating performance and a change in the regulatory environment, which impacts its business model, and/or any negative rating actions at BMO.”
A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Barbados-based United Insurance Company Limited, both with stable outlooks. Best said the “ratings reflect United’s solid capitalization, historically favorable underwriting performance and strong regional market profile. Furthermore, United benefits from the full support of its ultimate parent, Neal and Massy Holdings Limited, a large Caribbean-based conglomerate, which is publicly traded on the Trinidad and Tobago and Barbados stock exchanges. Over the past several years, United’s earnings have been impacted by significant operating losses stemming from its assumed reinsurance line of business, which culminated in 2011 with a net loss for the company.” However, Best also noted that “United’s management team has implemented corrective actions to exit its assumed reinsurance business and to refocus its operating strategy on its core Caribbean book of business. Year-end 2012 and year-to-date results reflect this change in strategy as profitability has begun to trend up from 2011 lows. Although United’s exit from its assumed reinsurance line of business is anticipated to have considerable costs in the short term, it is Best’s expectation that United’s renewed concentration on its core businesses should return it to former levels of profitability.” In addition Best said that although “the outlook for United’s ratings is currently stable, potential negative rating triggers could include adverse operating results relating to its Caribbean book of business that are exacerbated by a large catastrophic event. Positive rating actions could occur if the company exhibits sustainable long-term improvements in operating performance coupled with improvements in Barbados’ macroeconomic environment and country risk tier.”
A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Oman Insurance Company P.S.C. (OIC), which is based in the United Arab Emirates. The outlook for both of the ratings remains stable. Best said the “ratings reflect OIC’s strong risk-adjusted capitalization, enhanced enterprise risk management (ERM) and strong franchise within the United Arab Emirates (UAE). A partially offsetting rating factor is the company’s declining underwriting profitability.” Best noted that in 2012 “OIC experienced a major change in its senior management. Subsequently the company restructured its existing operations, reviewing all business units and establishing greater controls across the organization. Most notable are the improvements in its ERM, which has been considerably enhanced over the past year and integrated within all business units. OIC’s risk-adjusted capitalization strengthened in 2012, due to its good level of retained earnings and the strategic disposal of equities and other illiquid assets within its investment portfolio. This has created surplus capital, which will be allocated to develop the company’s core underwriting activities.” Best also indicated that “OIC has maintained a leading position within the UAE, with a diversified portfolio across both life and non-life business segments. Furthermore, OIC has expanded its franchise regionally having acquired Dubai Group Sigorta in 2012, a Turkish non-life insurance operation. OIC’s underwriting performance declined in 2012, driven by a change in business mix towards medical healthcare, which operates at a higher loss ratio, underwriting costs associated with the recently acquired Turkish subsidiary and losses emanating from the energy portfolio. OIC’s combined ratio (excluding medical) increased to 96 percent in 2012 from 71 percent in 2011, whilst the life profit margin (including medical) decreased to 20 percent from 25 percent.” However, Best also noted: “OIC’s overall results remained in line with past performance supported by investment returns of 1.6 percent in 2012. Moreover, results for the first half of 2013 indicated a further strain on OIC’s underwriting performance with investment income expected to drive overall earnings. In conclusion Best said: “Upward rating movement could occur if OIC is able to successfully grow its regional franchise while maintaining robust profitability. Downward rating pressure could arise if there is a material decline in the company’s risk-adjusted capitalization and/or underwriting performance falls below its peer group.”
A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of New Zealand-based China Taiping Insurance (NZ) Co., Limited (CTPNZ, both with stable outlooks. Best said the “rating affirmations recognize CTPNZ’s adequate reinsurance buffer and its progress in settling claims thus far for the 2010-11 earthquakes, as well as the actions taken to de-risk its business and control operating expenses. The ratings also acknowledge the financial flexibility CTPNZ receives from its affiliation with China Taiping Insurance Group (HK) Company Limited.” Best noted that “CTPNZ’s valuations of the 2010-11 earthquakes indicate that losses remain within the reinsurance limits in place for the respective events. The company ceased writing new business from August 1, 2012, continued to settle outstanding claims arising from the 2010-11 earthquakes and initiated a number of expense control measures. These actions have improved the company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). In assessing CTPNZ’s prospective balance sheet strength, A.M. Best notes the company will further tighten operating expenses in 2013 and 2014 and settle all outstanding claims by December 31, 2014.” As partial offsetting factors Best cited “CTPNZ’s declining capital trend and regulatory solvency margin, high dependence on reinsurance and claims escalation that may potentially delay the settlement process. CTPNZ’s capital is expected to decline steadily and be marginally above the regulatory minimum level by December 31, 2014, as run-off expenses exceed investment income. Reinsurance recoverables associated with the 2010-2011 earthquakes have been reduced but remain at a high level relative to capital. This could expose the company to potential reinsurance disputes and liquidity risk during the run-off phase.” In conclusion Best said:” An upgrade of CTPNZ’s ratings is unlikely in the near term. Negative rating actions may occur if the company’s run-off period is longer than anticipated, i.e. beyond 2014, and/or if its capital position falls short of Best’s expectations.”
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