Ratings Recap: Westaim/Jevco, GCAN, Euro Arab

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating (ICR) of “bbb” of Jevco Insurance Company, which is based in Quebec. At the same time Best affirmed the ICR of “bb” of Jevco’s publicly traded parent, the Ontario-based Westaim Corporation. The outlook for all ratings is stable. The ratings and outlook of Jevco reflect its “adequate risk-adjusted capitalization, favorable operating performance and market expertise as it refocuses on underwriting core business lines,” said Best. In addition, the rating reflects the “benefits derived from the financial flexibility and explicit support of Westaim.” However, Best also indicated that these positive rating factors are partially “offset by soft commercial lines pricing, strong competitive market pressures and volatility, especially in the Ontario non-standard auto markets. In addition, although there are potential legacy reserve issues with Jevco being a former subsidiary of Kingsway Financial Services, Inc.,” Best said it anticipates that the “residual financial effects of Kingsway Financial will become less material in time. However, the potential exists for pressure on risk-adjusted capitalization if there is significant adverse reserve development in the near term on legacy business or if premium growth significantly exceeds projections. The rating of Westaim is based on the overall financial strength of Jevco, its main operating company in Canada.”

A.M. Best Co. has removed the issuer credit rating (ICR) of “a+” from under review with negative implications and affirmed the ICR and the financial strength rating of A (Excellent) of Ontario-based GCAN Insurance Company, both with stable outlooks. The rating actions follow the recent acquisition of GCAN by Roins Financial Services Limited (RFSL), a Canadian holding company whose ultimate parent is the UK-based RSA Insurance Group plc. The ratings and outlook reflect GCAN’s “excellent risk-adjusted capitalization, which is historically supported by a consistent stream of net investment income and favorable underwriting results,” Best explained. “As a result, the company’s five-year average pre-tax returns on revenue and equity have been excellent and compare favorably to the industry composite. In addition, capital and surplus appreciation has been solid with additions for five consecutive years. GCAN has consistently outperformed the overall industry from an operating ratio perspective during the latest five-year period.” Best also noted that the company “maintains excellent reserve development as evidenced by consistent redundancies on both an accident and calendar year basis, underpinned by the company’s continuing philosophy to prudently manage all aspects of the business and maintain a disciplined approach to underwriting for its long-term success. Finally, management foresees that GCAN will benefit from the overall infrastructural support of its new parent, RFSL, and its affiliates as its functionality is determined within the RSA Group of Canada.” As partial offsetting factors, Best cited the “soft market conditions in the Canadian commercial lines segment.” However, Best also said it “believes the company is well positioned to withstand existing soft market conditions based on management’s historically conservative focus on profitability. As GCAN integrates into the RSA Group of Canada and assumes its role within the group, it may be challenged to balance its new responsibilities that could potentially affect its long-term profitability.”

Standard & Poor’s Ratings Services has revised its outlook on Jordan-based Euro Arab Insurance Group P.S.C.’s (Euro Arab’s) ratings to negative from stable. S&P also affirmed the ‘BB+’ long-term counterparty credit and insurer financial strength ratings. S&P explained that it took the rating action following the “recent lowering of the long-term and short-term local currency sovereign ratings on the Hashemite Kingdom of Jordan (for more information, see “Jordan’s Local Currency Ratings Lowered To ‘BB+/B’; Foreign Currency Ratings Affirmed; Outlook Negative On Both,” published on Feb. 8, 2011, on RatingsDirect).” Credit analyst Ali Karakuyu added: “Under our ratings criteria, sovereign risk is a key factor influencing the financial strength of insurers. As a result, the vast majority of insurers are rated no higher than the relevant sovereign local currency rating. Consequently, we have revised the outlook on Euro Arab to negative to reflect the increasing sovereign-related risk.” S&P said the negative outlook on Euro Arab “reflects that on the long-term local currency sovereign credit rating on Jordan. If we were to lower the long-term local sovereign credit rating on Jordan, we would also lower the ratings on Euro Arab so that they were in alignment with the sovereign. Upwards rating action is unlikely over the rating horizon because of the currently challenging macroeconomic environment in Jordan.”

Topics Canada