Ratings Recap: Oil Casualty, Bison, East Africa Re, Kenya Re

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Bermuda-based Oil Casualty Insurance, Ltd (OCIL), both with stable outlooks. OCIL’s ratings “reflect its superior capitalization, balance sheet strength, generally profitable operating performance and the role it plays as an insurance company dedicated to providing excess general liability insurance programs to its member companies and participants in the energy industry,” Best explained. As a partial offsetting factor Best noted that “the source of OCIL’s business is limited to hazards, with the potential for a substantial loss for its insureds and, consequently, for the enterprise. OCIL writes excess general liability insurance throughout the United States and throughout the world.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based Bison Insurance Company Limited, both with stable outlooks. The ratings reflect Bison’s “historically adequate capitalization, generally favorable operating performance, conservative reserve levels and effective management of its catastrophe exposures,” said Best. The ratings also recognize Bison’s history of “maintaining sufficient capital and financial resources to support its ongoing obligations. As offsetting factors Best cited the company’s “volatile underwriting results due to the historically low loss frequency, relatively high loss severity nature of its risk profile, coupled with its high limits and high net retentions relative to surplus. Additionally, the continually changing risk profile of Bison’s primary insured causes large profile changes that affect the captive. This is mitigated by Bison’s conservative reserving philosophy and the ongoing, demonstrated support from its parent, Duke Energy Corporation. In addition best explained that the risk management team of Duke Energy “takes a holistic approach to managing its risks and utilizing the captive as an integral tool in this process. Bison continues to acquire additional lines of business from Duke Energy, thereby providing additional diversification of risks insured. Bison’s long-term growth opportunities primarily depend on the business success of Duke Energy. It is useful to note that in 2007, the risk profile of Bison became more conservative, though somewhat narrower, due to the spinoff of Spectra Energy, according to management. In the past, Spectra encompassed all of Duke Energy’s natural gas and pipeline business, which produced the majority of the large property and business interruption losses. Bison’s exposure to Gulf of Mexico property losses is significantly diminished, and Bison no longer provides business interruption coverage, subsequent to the spin off, except for limited amounts of coverage in South America in order to comply with contractual obligations.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B’ (Fair) and issuer credit rating of “bb+” of Kenya’s East Africa Reinsurance Company Limited (EARe), both with stable outlooks. The ratings reflect EARe’s “solid level of risk-adjusted capitalization and stable overall profitability,” said Best. Offsetting factors include the company’s marginal competitive market position.” Best added that it believes that EARe’s level of risk-adjusted capitalization is “supportive of the company’s prospective business plans. EARe’s capital position benefits from a conservative investment portfolio and a retrocession program of good credit quality. Although overall profitability has gradually improved over recent years, net profits have been reliant on investment income. In 2009, underwriting profit contributed 15 percent of net profits before taxes.” Best also said it believes that EARe “maintains a marginal market position. Its competitors are generally much larger players who often command legal cessions in the local market.” Furthermore, best said it “considers that EARe has a relatively concentrated portfolio, with a small number of cedants generating a significant proportion of premium income.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Kenya Reinsurance Corporation Limited, both with stable outlooks. The ratings reflect Kenya Re’s “strong level of risk-adjusted capitalization and good local business profile,” Best explained. “Offsetting the rating is a weak level of risk management.” Best added that Kenya Re “benefits from an 18 percent compulsory cession of all treaty business within its local market, which is set to remain in place until at least the end of 2015. Compulsory cessions account for around 40 percent of Kenya Re’s gross premium income, with the remainder being voluntary in nature and dispersed throughout Africa and internationally. Best also noted that a strong level of risk-adjusted capitalization is “supported by a large relative capital base.” Best considers that Kenya Re’s prospective business plans are “likely to be supported by the retention of a significant proportion of overall profits in future years. Partially offsetting Kenya Re’s level of risk-adjusted capitalization is a very high volume of premium debtors,” which, best said, it anticipates may result in significant provisioning in future years.” In Best’s opinion, Kenya Re’s “current level of risk management is poor. The company does not employ any formalized modeling tools to assess its catastrophe exposure, which is reflected by an unsophisticated assessment of its probable maximum loss (PML).” Best also indicated that it is “concerned that Kenya Re’s management is unable to monitor other risk metrics and utilizes only poor quality management information.”

Topics AM Best