Ratings Roundup: Toa Re, GeoVera, Argus Group

June 13, 2014

A.M. Best has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit ratings of “aa-” of The Toa Reinsurance Company Limited, based in Japan, and its subsidiary, The Toa Reinsurance Company of America (TRA),headquartered in Morristown, New Jersey. The outlook for all ratings is stable. Best said the “ratings reflect Toa Re’s solid risk-adjusted capitalization, improved underwriting results, driven by tightened underwriting criteria and its strong market presence in Japan. Toa Re maintains solid risk-based capitalization that is supportive of the company’s risk appetite and enhanced by its adequate operating performance. The company has continued to tightly manage underwriting guidance, based on its risk analysis, as the company is putting an emphasis on profitability over revenue growth, as evidenced by reduced catastrophic exposure since the 2011 events.” In addition the report noted that “as a sole domestic reinsurance company in Japan, Toa Re has established long-standing relationships with major ceding companies in Japan, as well as insurance/reinsurance companies in the Asia-Pacific region, which enables the company to secure stable growth in its business amid softening market conditions. As partial offsetting factors Best cited the “volatility in Toa Re’s operating performance, changes in buying behavior by large clients and increasingly competitive reinsurance market conditions. The company reported high volatility in earnings and capitalization in the past five years because of the large catastrophe losses and relatively high exposure to equity investments. The major ceding companies in Japan have increased their retentions as they have each experienced improvement in their capitalization, and have consolidated their reinsurance programs, a result of merger activity among themselves.” Best indicated that “Toa Re is well positioned at its current rating level. Downward pressure could arise if there is a material decrease in capitalization due to a significant deterioration in underwriting performance caused by large size catastrophe event.” Best said the “ratings of U.S.-based TRA are aligned with Toa Re, reflecting the company’s strategic importance as an operating subsidiary of Toa Re. TRA has a well-established position within the U.S. regional markets, a strong risk-adjusted capital position, a diversified book of business, and a continued focus on underwriting performance. The U.S. operation has grown to represent a substantial portion of premiums and operating income for the organization as it provides Toa Re the opportunity for strategic international expansion and portfolio diversification. At the same time, TRA benefits from the global presence and financial strength of Toa Re.”

A.M. Best has assigned a financial strength rating (FSR) of ‘A’ (Excellent) and an issuer credit rating (ICR) of “a” to Cayman Islands-based GeoVera Reinsurance, Ltd., and has assigned a stable outlook to both ratings. Best concurrently also affirmed the FSR of ‘A’ (Excellent) and ICR of “a” of the three other members of Calif.-based GeoVera Insurance Group, also with stable outlooks. “GeoVera Reinsurance, Ltd. was formed in late 2013 to replace GeoVera Re, Ltd. (Bermuda). GeoVera Re, Ltd., which was a former member of the group, is in the process of being liquidated with all of its assets and liabilities transferred to GeoVera Reinsurance, Ltd,” Best explained, adding that as a result, it has withdrawn the FSR of ‘A’ and the ICR of “a” of GeoVera Re, Ltd. Best said the rating affirmations “reflect GeoVera’s excellent risk-adjusted capitalization, strong operating earnings and management’s experience in its market segments. GeoVera’s underwriting focus continues to capitalize on its experienced market knowledge in catastrophe-prone business segments. Although GeoVera concentrates all of its underwriting efforts on providing coverage in catastrophe-prone areas, it combines an established catastrophe-modeled and web-based quoting and binding system to ensure proper pricing with an extensive catastrophe reinsurance program to mitigate its exposure.” However, Best also indicated that “GeoVera maintains high gross catastrophe leverage and is significantly dependent on reinsurance to reduce this exposure to a manageable level on a net basis.”
GeoVera Insurance Group consists of the following members:
GeoVera Insurance Company
Pacific Select Property Insurance Company
GeoVera Specialty Insurance Company
GeoVera Reinsurance, Ltd.

A.M. Best has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit ratings (ICR) of “bbb” of Bermuda-based Argus Insurance Company Limited and Bermuda Life Insurance Company Limited, both of which are subsidiaries of Argus Group Holdings – Best has affirmed the ICR of “bb” for the Argus Group. The outlook for all ratings is stable. The ratings affirmation reflects Argus Group’s “consolidated profitable operating results, the strengthening of its capital metrics and improvement of its asset quality,” Best explained. “On a consolidated basis, Argus Group’s underwriting and net income results turned positive in 2012, improved substantially in 2013 and continue to remain favorable. The improved results are primarily driven by strong underwriting performance combined with the lack of asset valuation write-downs. In addition, Argus Group has been transitioning its investment portfolio to higher quality lower risk assets. As a result, asset valuation write-downs have been minimal, and the stabilization of the investment portfolio has resulted in improved investment income. Furthermore, the transition of the investment portfolio also is achieving better asset-liability matching. The positive net income has allowed the organization to strengthen its capital level through retained earnings.” The report also noted that the “earnings results for Argus Group’s insurance operations continue to be positive, although the level of premiums and fee-based income growth has slowed, pressured by continuous weakness of the Bermuda economy. Bermuda Life (the organization’s domestic life, annuity, pension and health insurance subsidiary) reported strong net income results, which were driven primarily by a lower loss ratio for its health business and positive results from its invested assets. The favorable earnings, as well as the amalgamation with Somers Isles Insurance Company in 2013, have strengthened the capital level for Bermuda Life. Argus Insurance, the group’s domestic property/casualty writer, continues to record favorable underwriting results and maintains more than adequate risk-adjusted capitalization.” As offsetting factors Best cited “the intercompany receivables at the insurance subsidiaries, which while improved, still comprise a relatively high percentage of overall capital. In addition, although the consolidated assets quality improved over the past several years, an exposure to some low liquid mortgage loans persists and the holding company liquidity remains low, although the Argus organization does have working capital/overdraft facility with a local Bermuda bank.” In conclusion Best said: “Factors that may lead to positive rating actions include continued favorable underwriting and net income results, capital growth, improved quality of invested assets and better asset-liability matching. Factors that may lead to negative rating actions include earnings deterioration, increase in intercompany receivables and material investment write-downs that could lead to a decline in equity and capitalization.”

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