A.M. Best Co. announced that it has affirmed the financial strength rating of “A-“(Excellent) of the insurance and reinsurance operating subsidiaries of the Alea Group (Bermuda). The rating applies to Alea London Limited, Alea (Bermuda) Ltd. Alea Europe Ltd. Alea North America Insurance Company, Alea North America Specialty Insurance Company, Alea Global Risk Limited and Alea Jersey Limited. The outlook on all of the ratings remains stable.
“The affirmation is based on the group’s excellent level of consolidated risk-based capital and improving market profile,” said Best. It noted, however, that “Alea’s strong underwriting performance is partially offset by uncertainties with regard to future claims inflation for its U.S. casualty book of business, which could negatively impact future earnings.”
Best expects Alea’s risk-adjusted capital to remain in the excellent range, as prior concerns regarding potential growth-related capital strain “were substantially addressed by the $263 million net proceeds from Alea’s Initial Public Offering in November 2003. Alea intends to commence paying dividends in 2004, although the majority of earnings are likely to be retained to support future growth.”
Best said it “believes after-tax earnings are likely to result in a return on equity above 12 percent in 2004 and 2005, as the high volume of premium written in the hard market is earned through the income statement. Best also noted that, in line with its expectations, “Alea achieved an underwriting profit of $27.7 million in 2003, resulting in an excellent combined ratio of 89.3 percent. The announcement expressed caution, however, as Best said it believes that “significant uncertainties remain with regard to reserve adequacy due to the relative immaturity of Alea’s U.S. casualty book. These uncertainties are compounded by adverse industry loss-cost trends, which could impair prospective earnings.”
The group’s business position is improving. Premium income is likely to grow by a further 20 percent in 2004 to approximately $1.56 billion “as it continues to allocate capacity to ART risks, specialty and U.S. casualty business where pricing and conditions remain firm.”
Best also said it “believes Alea has been successful in transitioning its strategic focus, and the emerging presence of Alea North America Insurance Company brings the group closer to its principal market. The challenge for management prospectively is to retain underwriting discipline as the market starts to soften following a period of rapid growth and to increase the group’s non-U.S. revenues in order to improve diversification within the portfolio.”
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