Ratings Recap: Trust Re, Alliance

August 22, 2014

A.M. Best has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Trust International Insurance & Reinsurance Company B.S.C. (c) Trust Re, which is based in Bahrain. The outlook for both ratings remains stable. Best said the ratings “reflect Trust Re’s good risk-adjusted capitalization, track record of strong operating performance and developing business profile.” Best also noted that “Trust Re’s risk-adjusted capitalization strengthened during 2013, remaining at a good level. The improvement reflects a capital injection of $40 million and full earnings retention, increasing shareholders’ equity to $298 million in 2013. Additionally, the company’s continued drive to de-risk its investment portfolio has reduced capital requirements. Prospective risk-adjusted capitalization is expected to remain commensurate with the current ratings as further de-risking of the investment portfolio and high earnings retention supports underwriting growth.” Best’s report also pointed out that “Trust Re has a track record of strong operating performance with annual pre-tax profits of between $13.1 million and $19.5 million reported over the past five years, equating to an average return on equity of 7.5 percent. Disciplined risk selection and a prudent reserving policy have enabled the company to generate robust technical results, evidenced by a five-year average combined ratio below 95 percent. Although investment returns remain low yield, they continue to account for a significant proportion of overall earnings.” The report also indicated that “Trust Re has a developing business profile as a specialist underwriter of energy and property reinsurance across the Arab, Afro-Asian and Eastern European markets, strengthened by its long-standing relationships with key cedents. In addition, the company benefits from its exposure to the Lloyd’s market via its investment in Trust Underwriting Limited (a corporate member at Lloyd’s). Going forward, the composition of Trust Re’s underwriting portfolio is not expected to change materially in the short term; however, some geographic diversification is anticipated as the company looks to grow its presence in certain Asian and African markets.” Best said it “believes that the ratings for Trust Re are appropriately positioned at their present level. Negative rating pressure could arise from a significant decline in risk-adjusted capitalization or a prolonged deterioration in operating performance.”

A.M. Best has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Alliance Insurance (PSC), which is based in the United Arab Emirates. The outlook for both ratings remains stable. Best said the “ratings reflect Alliance’s strong risk-adjusted capitalization, excellent overall profitability and moderate business profile. Alliance maintains a strong risk-adjusted capitalization that benefits from low underwriting leverage, a conservative investment portfolio and a reinsurance program of good credit quality. Internal capital generation from strongly performing underwriting operations is likely to adequately support increasing capital requirements as the company grows its franchise over the coming years.” In addition Best pointed out that “Alliance has demonstrated a good track record of profitability, with overall earnings reaching AED 44 million ($12 million) in 2013, equivalent to a return on capital and surplus of 12 percent. Alliance’s profitability is supported by a solid underwriting performance, with life business producing a 14 percent gross profit margin and non-life achieving a strong combined ratio of 55 percent. Furthermore, Alliance’s profitability is supplemented by a conservative and stable investment profile that yielded a 4.7 percent return in 2013.” Best described Alliance as a “medium-size composite insurance company operating in the United Arab Emirates; adding that it has a “balanced profile providing life and general insurance products. Alliance’s premium retention on non-life business remains low, emphasizing its high level of reinsurance dependence. Negative rating pressures could arise from a material deterioration in Alliance’s financial performance and/or risk-adjusted capitalization. Positive rating movement is unlikely in the near term.

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