Ratings Recap: Lancashire, Qatar Insurance, Tunis Re

July 11, 2014

A.M. Best has commented that the financial strength rating of ‘A’ (Excellent) and the issuer credit ratings of “a” of Qatar Insurance Company S.A.Q. (QIC) and its main subsidiaries remain unchanged following QIC’s acquisition of Antares Holdings Limited. Best added that it would “closely monitor QIC’s capital position and operating performance following this strategic transaction and the high level of growth anticipated within its reinsurance subsidiary. The acquisition of Antares is in line with QIC’s strategy to build an international, diversified insurance group,” the report continued. “The acquisition provides QIC with greater diversification geographically and by line of business. Antares is a specialist insurance and reinsurance group operating in the Lloyd’s market, writing £224 million ($384 million) of premium revenue, translating into approximately 40 percent of QIC’s profile at year-end 2013. Antares underwrites business through Lloyd’s Syndicate 1274, using its integrated managing agency, and it has a Bermudian platform with a Class 3 reinsurance license. QIC is expected to achieve year-on-year gross premium growth of 64 percent in 2014 due to the acquisition of Antares and with the expansion of its existing reinsurance subsidiary, Qatar Reinsurance Company LLC.” Best’s report also noted that “QIC’s strong risk-adjusted capitalization has enabled it to fund the acquisition internally, while maintaining sufficient capital adequacy for the current rating level. Given the robust profitability of Antares’ and QIC’s direct domestic and international operations, QIC is expected to be able to grow its capital organically to support prospective growth.”

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a” of Bermuda-based Lancashire Insurance Company Limited and Lancashire Insurance Company (UK) Limited, collectively known as Lancashire. Best has also affirmed the ICR of “bbb” and debt ratings of the parent company, Lancashire Holdings Limited, also based in Bermuda. The outlook for the FSR is stable, while the outlook for all remaining ratings is positive. The ratings “reflect Lancashire’s excellent risk-adjusted capitalization, very strong operating results since inception, experienced management team and the financial flexibility afforded to the group by the listing of Lancashire Holdings’ shares on the London Stock Exchange,” Best said. “Additionally, the ratings reflect the group’s strong enterprise risk management framework, which has mandated its conservative operating strategies. This customized risk management framework has produced excellent underwriting results, which has enabled Lancashire to consistently generate return measures at the high end of the peer group.” As a partial offsetting factor Best’s report cited “the company’s exposure to low frequency, high severity events due to its targeted lines of business. Lancashire’s operating activities focus on a specialist approach to writing core accounts as well as targeting dislocated classes of business. The business plan encompasses a diversified mix of business, both geographically and by class, including direct short-tail property insurance and reinsurance, energy and terrorism, as well as a small portfolio of third-party AV52 aviation liability and marine risks, including hull and protection and indemnity coverage. With the addition of Cathedral Capital Limited and Kinesis Capital Management Limited, Lancashire’s business profile has been enhanced. Another positive aspect is the increase in the organization’s scale, which has resulted from these two additions.” In conclusion Best said: “Factors that could lead to an upgrading of the ratings would be for Lancashire to continue its long-term, consistently strong operating profitability as well as maintain an excellent risk-adjusted capital level that is commensurate with its ratings. Factors that could lead to a downgrading of the ratings and/or a revised outlook include unfavorable operating profitability trends, outsized underwriting or investment losses and a significant decline in risk-adjusted capital that would not be supportive of the organization’s current rating level.”
Best summarized the ratings covered by its review as follows -  The following debt ratings have been affirmed:
Lancashire Holdings Limited—
– “bbb” on $130 million 5.7 percent senior unsecured notes, due 2022
– “bbb-” on $130 million 3.7 percent over LIBOR/EURIBOR subordinated notes, due  2035 ($97 million, €33 million [45 million] as of December 31, 2013).

A.M. Best has affirmed the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of Société Tunisienne de Réassurance (Tunis Re), both with stable outlooks. Best said the “ratings of Tunis Re reflect its strong risk-adjusted capitalization, good underwriting performance and solid business position in its domestic market. The ratings also recognize Tunis Re’s exposure to the macro-economic and political risks in Tunisia, its core market. Tunis Re’s risk-adjusted capitalization remains strong and is expected to strengthen, supported by good earnings retention and external capital generation. After a successful capital increase in May 2012, which boosted Tunis Re’s capital and surplus to TND 131.5 [$77.526 million] million at year-end 2012, the company intends to raise an additional TND 25 million [$14.739 million] by 2016.” Best’s report also indicated that Tunis Re’s gross written premium (GWP) increased by 11 percent to TND 85.9 million [$50.643 million] in 2013, “which strengthened its leading position in the Tunisian reinsurance market, with an estimated market share of approximately 20 percent. The company reported a record net income of TND 7.7 million [$4.54 million] in 2013, chiefly driven by solid investment income, with technical performance remaining modest, producing a combined ratio of 98 percent.” Best also noted that “Tunis Re’s management has successfully navigated the company through a turbulent period within its domestic market. Despite gradual improvement in its geographical diversification, 64 percent of the company’s GWP was generated in Tunisia in 2013. Additionally, the majority of its investment portfolio is restricted to the domestic market.” In conclusion Best said: “Positive rating actions are unlikely at present. Negative rating actions could occur if Tunis Re’s financial performance or risk-adjusted capitalization were to materially deteriorate. Additionally, the company’s ratings could be negatively affected by heightened economic and political risks in Tunisia.”

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