Ratings Recap: ASSA/Lion Re, Local Tapiola, Liffey Re, Del Istmo, QBE Del Istmo

January 11, 2013

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Panama City-based ASSA Compania de Seguros, S.A. (ASSA), as well as the FSR of’ A-‘ (Excellent) and ICR of “a-” of Bermuda-based Lion Reinsurance Company Limited (Lion Re). The outlook for all of these ratings is stable. Best said the “ratings reflect ASSA’s continued excellent operating results, favorable capitalization and strong business profile. ASSA maintains a well-diversified book of business that includes both property/casualty and life/health products. ASSA is ultimately owned by Grupo ASSA, S.A., a publicly traded financial services holding company listed on the Panama stock exchange.” In addition Best noted that “ASSA has shown disciplined underwriting in a highly competitive market, while its risk-based capitalization remains fully supportive of its current ratings and outlook. ASSA’s underwriting profitability is complemented by consistent levels of investment income, which has enabled it to steadily appreciate surplus while still providing Grupo ASSA with dividend payments. ASSA also benefits from established risk management systems and strong reinsurance programs across most lines of business.” As partial offsetting factors Best cited “ASSA’s risk concentration in a geographically limited insurance market along with operating in a country that Best considers to have an elevated level of country risk compared to ASSA’s ratings. Additionally, the Panamanian insurance market is becoming increasingly competitive as local and large outside insurers continue to compete for market share.” Best said “positive rating actions could occur if ASSA maintains its consistently strong underwriting performance and long-term profitability in conjunction with an upgrading of Panama’s country risk tier. Negative rating triggers could include a significant decline in ASSA’s risk-based capitalization, sustained adverse operating performance or a downgrading of Panama’s country risk tier.” Commenting on the ratings of Lion Re, Best said they “acknowledge its strong initial capitalization, conservative operating strategy and the explicit parental support. The ratings also consider Lion Re’s strategic role as a captive reinsurer of ASSA Tenedora, S.A.” In addition Best noted: “Also inuring to Lion Re’s ratings is its sound business plan, upon which the profitability and liquidity measures of these ratings are based. The ratings are supported by an amount of capital that meets Best’s requirements for newly formed companies as measured by Best’s Capital Adequacy Ratio (BCAR). Lion Re operates as a Bermuda-based reinsurer focused on writing a combination of property, casualty, health and group life business from affiliated insurers.” However, Best also indicated that these positive rating factors “are partially offset by execution risk due to the unproven start-up nature of the company. Drivers that could lead to a positive outlook or rating upgrades for Lion Re are a stable underwriting performance, as well as reduced overall net exposure over the next few years and successful implementation of its business plan. Factors that could lead to a negative outlook or rating downgrades are a material loss of capital from either claims or investments, a reduced level of capital that does not support the ratings or an increase in net retention. Lion Re’s ratings are tied to A.M. Best’s internal assessment of Grupo ASSA; therefore, an unfavorable operating performance or material loss of capital could result in changes to the captive’s ratings.”

A.M. Best Europe – Rating Services Limited has removed from under review and affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Finland’s LocalTapiola General Mutual Insurance Company (formerly known as Tapiola General Mutual Insurance Company [Tapiola General]). The outlook for the ratings is stable. Best said the “ratings reflect LocalTapiola’s strong consolidated risk-adjusted capitalization and excellent business profile as a leading mutual insurer within its domestic market” As an offsetting factor Best noted “the company’s weak underwriting performance. The company formerly known as Local Insurance Mutual Company merged into Tapiola General on 31 December 2012 and the merged company subsequently changed its name to LocalTapiola,” which has been operating under that name since January 1, 2013. Best noted that “in anticipation of improved overall results, risk-adjusted capitalization is projected to remain strong at the end of 2012. Tapiola General’s risk-adjusted capitalization deteriorated in 2011, largely due to a decrease in the claims equalization reserve (€456.4 million [$606 million] at year-end 2011, which accounted for approximately 40 percent of Tapiola General’s capital and surplus), precipitated by underwriting losses made during the year.” Best also indicated that, given the company’s mutual status, “financial flexibility remains limited. Nevertheless, prospective capitalization within the merged company is expected to remain stable, enhanced by an increase in the claims equalization reserve. Following actions implemented by management to improve risk selection and underwriting performance, as well as overall favorable claims activity during the year, interim technical results in 2012 showed significant signs of improvement compared to the same period the previous year. Given the lack of severe winter storms, Tapiola General expects to report a combined ratio of approximately 100 percent by year-end 2012. In 2011, Tapiola General reported an underwriting loss of €149.3 million [$198 million] (2010: loss of €90.1 million [$119.65 million]), owing to the impact of severe winter storms at the end of the year.” Best also observed that “reserve strengthening on the company’s motor third party liability and workers’ compensation portfolios due to a change in mortality assumptions contributed to the deterioration in technical performance.” Best said that overall “LocalTapiola is expected to maintain an excellent business profile as the largest mutual insurer in Finland. The merger will make the company one of the largest non-life insurers within Finland with an anticipated market share of around 30 percent, corresponding to gross premium income in excess of €1 billion [$1.328 billion]. It is anticipated that some economies of scale will be achieved as a result of the merger whilst simultaneously expanding LocalTapiola’s distribution network across 19 regional mutual insurers, which were previously part of the Local Insurance Group. The company will continue to benefit from additional revenues and cross-selling opportunities offered by its banking subsidiary, Tapiola Bank Ltd, which specializes in retail banking services and housing mortgage lending. Positive rating movements are unlikely at present. Negative rating movements could occur if there were a notable reduction in LocalTapiola’s consolidated risk-adjusted capitalization and/or a continued deterioration in technical performance.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Dublin-based Liffey Reinsurance Company Limited (Liffey Re), both with stable outlooks. The ratings reflect Liffey Re’s “solid capitalization, strong operating results and its experienced management team that has an in-depth knowledge of the markets in which it operates,” Best said. As a partial offsetting factor Best cited the company’s “limited business profile as it currently only assumes business from its parent, QBE del Istmo Reinsurance Company, Inc. [see following]. The reinsurance business Liffey Re assumes on a retrocession quota share basis includes personal accident, fire, auto, marine cargo and fidelity. The company’s enterprise risk management framework is fully aligned with that of its parent and includes oversight by executive committees and the Board of Directors. Positive rating actions may be considered in the long term if Liffey Re maintains strong operating results and capitalization levels. Negative rating actions may occur if the company grows excessively or if operating results or capitalization deteriorates significantly.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Panama City-based Del Istmo Assurance Corp, both with stable outlooks. Best said the “ratings reflect Del Istmo Assurance’s solid capitalization, strong overall operating performance and its experienced management team that is very familiar with its written business.” As a partial offsetting factor Best cited the “limited business profile of Del Istmo Assurance, as it writes primarily performance bonds in Panama. Del Istmo Assurance’s business consists of performance bonds, construction all risk and general liability. The company is well positioned to take advantage of the growth opportunities that are available in the Panamanian marketplace as the country continues to develop.” In addition Best noted that Del Istmo Assurance “has the competitive advantage of being a well-established, long-term insurer with a reputation for delivering a customized product, strong customer service and technical expertise to its client base. The company’s enterprise risk management framework is fully aligned with that of its parent, QBE del Istmo Reinsurance Company, Inc. [see following], which includes oversight by executive committees and the Board of Directors. Positive rating actions may be considered in the long term if Del Istmo Assurance maintains strong operating results and capitalization levels. Negative rating actions may occur if the company experiences excessive growth, if operating results or capitalization deteriorates significantly or if there is a change in the regulatory environment, which would negatively impact Del Istmo Assurance’s operations.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’- (Excellent) and issuer credit rating of “a-” of Panama City-based QBE del Istmo Reinsurance Company, Inc. (QBE Del Istmo), both with stable outlooks. The ratings reflect QBE Del Istmo’s “solid capitalization levels, overall profitability, disciplined underwriting and its experienced management team that has an in-depth knowledge of the markets in which it operates,” Best explained. As partial offsetting factors Best noted “potential changes in the regulatory environment that could negatively impact the company’s ability to write business, rapid expansion and the risks associated with writing catastrophe business.” However, Best also indicated that “QBE Del Istmo has not experienced any major catastrophe events since 2007 and has limited exposure to oceanfront property business. QBE Del Istmo has established an enterprise risk management framework to identify, measure and monitor both existing and emerging risks across its respective business entities and to allocate capital accordingly. The company’s strategy is to focus on the needs of the small to mid-sized market players and to provide customized products, technical expertise and superior customer service to its clients. This strategy has proven successful for QBE Del Istmo and is evidenced by its strong working relationships and high client retention levels. Positive rating actions may be considered in the long term if QBE Del Istmo maintains strong operating results and capitalization levels. Negative rating actions may occur if the company’s operating results or capitalization deteriorates significantly or if excessive expansion takes place.”

Subscribe Insurance news headlines delivered to your email.
Get a free subscription to our popular email newsletter.

Add a Comment

Your email address will not be published. Required fields are marked *

*

More News
More News Features