Standard & Poor’s lowered its public information (pi) insurer financial strength rating on midsize Singapore general insurer Cosmic Insurance Corp. Ltd. to single-‘Bpi’ from double-‘Bpi’.
The downgrade reflects the company’s weakened financial profile in 2001 amid a still-competitive and challenging operating environment. Cosmic Insurance’s underwriting position posted a deficit during the year as a result of the weak performance of its major lines of business. In addition, its operating profitability also worsened, mainly attributed to a write-down in values of its investment portfolio. Consequently, this has weakened its solvency position and any continued deterioration in its capitalization would be a cause for concern.
Cosmic Insurance’s financial performance deteriorated in 2001, with reported loss of ($6.3 million), almost double the previous year. Equity market volatility also caused a write down of a further S$5 million in the investment portfolio during the year. Its underwriting performance also weakened, posting a third consecutive year of underwriting losses of S$10.7 million, compared to S$8.7 million in 2000. This was mainly attributed to the weak performance of its main lines of business. As a result, its combined ratio (expense ratio plus loss ratio) crept up to 119.2 percent in fiscal 2001 from 118.3 percent the previous year.
Cosmic Insurance is likely to require additional capital to strengthen its reserving and solvency positions, especially as the insurance industry moves toward the implementation of a risk-based capital framework by the end of 2003.
Capitalization as measured by solvency (the ratio of risk written to shareholders’ funds) has weakened considerably to 160.7 percent from 98.4 percent in 1999. This was mainly attributed to its pre-tax losses incurred over the past two years.
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