A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) of Australian insurer ACE Insurance Limited (ACEAU) with a stable outlook.
“The rating reflects ACEAU’s operating profitability, good underwriting performance and improved risk-adjusted capitalization,” said Best. It also noted “ACEAU’s underwriting discipline and relatively conservative investment strategy, indicating that it “will contribute to the company’s financial stability. The rating also considers the comprehensive reinsurance support from the ACE Group and its related entities.”
Best Noted: “ACE’s Australian and Southeast Asian operations generated net income after tax of AUD 111 million (USD 87 million) in 2004, an increase of 88 percent. This was due primarily to the recognition of lower net claims incurred. As a result, its loss ratio was 23.7 percent in 2004, compared to 43.6 percent in 2003.
“ACEAU’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, also improved. The company’s capital adequacy multiple under the Australian Prudential Regulation Authority (APRA) regulatory standard stood at 2.51 times at the end of 2004, compared with 2.09 times the previous year. Investment yield has been relatively stable, with a return of 6.2 percent in 2004.”
ACEAU’s increasing exposure to long-tailed risks, softening premium rates and intense market competition were cited as partially offsetting factors. Best notes that the “Australian general insurance industry is highly concentrated, with the top five insurers generating over 80 percent of total market premiums. Additionally, existing capacity in the market has led to softening premium rates. ACEAU will face increasing challenges in maintaining its recent strong performance.
“Despite ACEAU’s balanced business composition, A.M. Best remains cautious about the expansion of the financial lines portfolio given the long-tail nature of this business segment. ACEAU’s capitalization is expected to moderate as funds are used to strengthen reserves for the financial lines.”