Ratings Recap: TATIL, West of England Ship, M&C General

December 9, 2013

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Trinidad & Tobago Insurance Limited (TATIL), both with stable outlooks. Best said its ratings “reflect TATIL’s history of profitable overall operating performance, solid capitalization and the support it receives from its ultimate parent, ANSA McAL Limited (AMCL). AMCL is one of the largest diversified companies in the Caribbean and is publicly traded on the Trinidad & Tobago Stock Exchange.” TATIL has consistently produced favorable underwriting results, which have been complemented by a steady level of investment income. Stable overall earnings and relatively modest dividend requirements have allowed TATIL to grow surplus and maintain a strong level of risk-adjusted capitalization. Additionally, TATIL has the support and commitment of AMCL, benefitting from its synergies, along with access to its considerable resources, including information technology and financial and investment management services.” As partial offsetting factors Best cited “the geographic concentration of TATIL’s operations, its continuing challenges to maintain overall earnings and market share in extremely competitive markets and the potential impact from exposure to catastrophic events.” The report also explained that, although the “outlook for TATIL’s ratings is stable, positive rating actions could occur if the company outperforms its Caribbean peers, maintains strong capitalization and/or there is an improvement in the Trinidad & Tobago country risk tier. Negative rating actions could occur if there is a material decline in TATIL’s risk-adjusted capitalization or operating performance, outsized catastrophic losses when compared to peers and/or a downgrading of the Trinidad & Tobago country risk tier.”

A.M. Best Europe – Rating Services Limited has revised the outlook to stable from negative and has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of The West of England Ship Owners Mutual Insurance Association (WOE or the Club), which is based in Luxembourg. Best said the stable outlook reflects its view that “the actions management has taken in recent years to improve the Club’s underwriting performance are being realized. The impact of these measures is expected to continue to support WOE’s ability to produce operating results and maintain risk-adjusted capitalization at levels commensurate with the Club’s current ratings. For the year ended February 2013, WOE reported a combined ratio of 103 percent (compared with 109 percent in 2012), which is significantly better than the combined ratio of 129 percent reported at its peak in 2010. WOE’s underwriting performance has been supported by the corrective measures it took to de-risk its insurance portfolio, which included reducing its exposure to members with adverse claims experience, increasing its focus on shorter-tailed lines of business and reducing its presence in high risk markets.” Best said it “expects WOE to report a small underwriting loss in the year ending February 2014. However, overall earnings of the Club are expected to remain positive, supplemented by income from its investment portfolio of predominately cash and fixed income securities.” In addition the report noted that “WOE has demonstrated a reduced reserve and investment risk profile. For the third consecutive year, WOE has reported reserve redundancies, following changes made to its reserving guidelines and claims estimation process. Additionally, the Club has actively reduced its exposure to riskier asset classes, with equities and absolute return funds representing 13 percent of total investments in 2013, compared to 29 percent in 2010.” Given these factors, Best indicated that it “expects risk-adjusted capitalization to be maintained at a stronger and more stable level going forward.” Best also noted that “WOE has an established niche business profile, which benefits from its membership in the International Group of Protection and Indemnity Clubs, and a well-diversified book of business by vessel types and geographical areas. Additionally, the Club benefits from its legal right to make supplementary calls to its members.” In conclusion Best said: “Positive rating actions are unlikely in the near term due to WOE’s current rating fundamentals. A decline in underwriting performance, particularly due to reserve deterioration, and/or erosion in risk-adjusted capitalization to a level outside of Best’s expectation will likely result in a negative rating action.”

A.M. Best Co. has assigned a financial strength rating of ‘B++’ (Good) and an issuer credit rating of “bbb+” to M&C General Insurance Company Limited (M&C General), which is based in St. Lucia, and has assigned a stable outlook to both ratings. The report said the “ratings reflect M&C General’s excellent risk-adjusted capitalization, overall earnings in recent years, conservative reinsurance program and local market expertise. In addition, the ratings recognize M&C General’s affiliation with its ultimate parent, Goddard Enterprises Limited, one of the largest Barbados-domiciled conglomerates. M&C General has parental support, and this affords the company access to the group’s resources, including financial and investment management and information technology. Solid underwriting results along with consistent levels of investment income have led to surplus growth in recent years and has enabled M&C General to maintain a very strong level of risk-adjusted capitalization for its current business profile. The management team at M&C General has extensive knowledge of the domestic market and continues to maintain effective risk management strategies. In addition, catastrophe risk is mitigated by M&C General’s conservative reinsurance program, which protects its capital from both frequency and severity of events.” As partial offsetting factors Best cited the “geographic concentration of M&C General’s business in an increasingly competitive domestic market, its reliance on reinsurance as a catastrophe risk mitigation strategy and local regulatory risk.” Best said it “anticipates that the competitive landscape in the St. Lucia insurance market will continue to pressure the company’s earnings and market share. While M&C General’s ratings are stable, factors that could contribute to rating enhancement include continued improvement in underwriting performance and overall profitability and an upgrade in St. Lucia’s country risk tier rating. Factors that may lead to negative rating actions include a sustained decline in the company’s underwriting profitability, significant deterioration in its risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) and a downgrade in St. Lucia’s country risk tier rating.”

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