A.M. Best Co. has affirmed the financial strength rating (FSR) of “A-” (Excellent) and the issuer credit rating (ICR) of “a-” of Bermuda-based Ariel Reinsurance Company Ltd. Best also assigned an ICR of “bbb-” to Ariel Holdings Ltd. The outlook for all ratings is stable.
“The rating affirmations reflect Ariel’s solid risk-based capitalization and its successful first year execution of operations within the parameters of the business plan presented to A.M. Best during last year’s initial rating process,” said the announcement. “In addition to meeting A.M. Best’s established requirements for new company formations, the ratings also reflect Ariel’s ability to sustain A.M. Best’s stricter risk-based capital requirements for newly formed property catastrophe companies.”
Best said its “initial concerns regarding Ariel’s existing infrastructure and risk management capabilities have been alleviated through its significant system enhancements regarding pricing, exposure accumulations and claims. The company has also successfully augmented its management and staff with the addition of seasoned personnel through its first year of operations. Overall, Ariel has adhered to its 2006 business plan, with some prudent adjustments made through the year to focus on pricing opportunities in certain regions while maintaining a rational risk profile.”
The bulletin also noted that “as part of the new company formation monitoring process, A.M. Best has been kept fully apprised of Ariel’s progress. Despite these pricing opportunities, Ariel fell below its premium volume expectations for its first year of operations. As a result, risk-based capitalization remains solid, well within A.M. Best’s initial expectations.
“In addition to being susceptible to low frequency high severity events, Ariel will continue to be challenged by increased competition from both established companies and other new start-ups in the industry,” Best’s analysis continued. “The additional capacity brought to the market will dampen expected returns over the cycle if pricing of reinsurance coverage fails to meet anticipated levels. Furthermore, the ability of Ariel to effectively build and retain market acceptance will only be proven over time. Accordingly, A.M. Best will continue to closely monitor the quarterly performance of Ariel against its stated business plan, and any material negative deviations in terms of management, earnings, capitalization or risk profile could result in downward pressure on the assigned ICR.”
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