Ratings Recap: Jubilee (Pakistan), Montana Re (notes), United

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” to Pakistan’s Jubilee General Insurance Company Limited, both with stable outlooks. The ratings reflect Jubilee’s “strong risk-adjusted capitalization, solid business profile within Pakistan and good track record of operating performance,” said Best. As partial offsetting factors Best cited the company’s “dependence on its investment performance for maintaining robust profitability and the level of its enterprise risk management (ERM).” Best noted that Jubilee “is an established company in the Pakistan market, ranking third by gross written premiums. Its strong position has enabled it to achieve premiums in excess of PKR 5 billion ($58 million) by year-end 2011.” The report said its “strong focus and expertise on the local market is likely to strengthen its position. The company has taken good initiatives to develop new products and further enhance its partnerships in the country, which is expected to enable Jubilee to successfully grow faster than the market.” In addition Best said “Jubilee’s strong risk-adjusted capitalization is driven by a solid capital base of PKR 3.5 billion ($38.9 million) as at December 2011, relative to a low level of investment and credit risks. Prospective capital adequacy is expected to remain strong and sufficient to absorb Jubilee’s projected growth of up to 25 percent in each of the next two years. Furthermore, Jubilee’s capital position benefits from its prudent dividend policy with a high level of earnings retention. Jubilee has a track record of good operating performance. Profit after tax reached approximately PKR 800 million ($8.9 million) in 2011, 77 percent higher than in 2010. Technical profits have generally been stable, with the exception of 2010, which were impacted by flood losses. Thereby, technical performance amounted to PKR 153.7 million ($1.7 million) in 2011, showing a considerable improvement compared to 2010 (PKR 64 million [$745,000]). The biggest share of profits originates from the company’s investment income, which in 2011, totaled PKR 748.3 million ($8.3million) against PKR 587 million ($6.8 million) a year before, highlighting its dependence on this source of income.” Best indicated that in its view, “Jubilee has developed good procedures in assessing, measuring and mitigating the key risks associated with the company. Jubilee continues to develop its risk framework, which is currently in line with its regional peers. An improvement in the company’s ERM, and sustainable operating performance would add positive pressure on the ratings. A substantial deterioration in operating performance or risk-adjusted capitalization could add negative pressures to the ratings.”

A.M. Best Co. has affirmed the debt ratings of “b” on $100 million series 2009-1 Class A and “ccc” on $75 million series 2009-1 Class B principal-at-risk variable rate notes (collectively, the notes) both due December 7, 2012, issued by Cayman Islands-based Montana Re Ltd., both with stable outlooks. The rating actions reflect “no changes in perceived risk underlying the securities and no reported events have occurred, which may impact the ratings since the last rating actions on July 13, 2011,” Best explained. “The notes provide Flagstone Réassurance Suisse S.A. (Switzerland) with the following protection: Class A notes—$100 million protection against U.S. hurricanes and Class B notes—$75 million protection against U.S. hurricanes and earthquakes. The protections are based on a modified property claim services index trigger on a per occurrence basis covering a three-year period (November 30, 2009 to November 30, 2012).”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of United Insurance Company Limited, which is based in the Barbados. The outlook for both ratings is stable. The ratings reflect United’s “solid capitalization, historically favorable underwriting performance and strong regional market profile,” said Best. “Furthermore, United enjoys full support from 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.” However, Best indicated that “United’s net income has been impacted by significant operating losses stemming from its assumed reinsurance segment over the past several years, culminating in 2011 with a net loss for the company.” As a result Best noted that “United’s management team has undertaken corrective action plans to exit and run-off its assumed reinsurance business and to refocus its operating strategy on its core Caribbean book of business. Although exiting from its assumed reinsurance line of business is anticipated to have considerable costs over the next several years.” Best added that it expects “United’s renewed concentration on its core businesses should return the company to its former level of profitability. While the outlook for United is currently stable, potential negative rating triggers could include protracted adverse operating results 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.”