Ratings Recap: Century Insurance (Guam & Saipan), Taiping Re

January 5, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Century Insurance Company (Guam) Ltd. (CIC Guam)and Century Insurance Co., Ltd. (CIC Saipan), headquartered in the Northern Mariana Islands. The outlook for all of the ratings is stable. The ratings reflect the “prudent investment strategies adopted in 2009 and both companies’ willingness to reduce high expenditures as they share the same management team, said Best. They also “acknowledge the financial support from the immediate holding entity, Tan Holdings Corporation, to both companies’ surplus expansion in the form of a no dividend payout. Tan Holdings is further committed to support CIC Guam’s business growth and to improve the company’s risk-based capitalization; therefore, it infused $5 million of capital in June 2010, which is almost twice its surplus in year-end 2009.” Best also noted that CIC Guam “disposed of its entire equity portfolio in 2009, lowering its exposure to the financial market volatility, while CIC Saipan only invests in cash and cash equivalents, providing it a strong liquidity to support the short-tailed nature of its insurance liabilities. As the three-year average expense ratios of CIC Guam and CIC Saipan remain over 60.0 percent, initiatives have been taken in 2010 to further cut the spending. These initiatives include reduction of management expenditures for both companies and a tax exemption for CIC Guam since July 2010.” As offsetting factors Best cited CIC Guam and CIC Saipan’s “volatile underwriting performance, the claims reserving practice, significant amount of overdue insurance receivables from Aon Micronesia (Aon), and high reliance on reinsurance to mitigate the inherit exposure to catastrophic perils in Guam.” Best explained that CIC Guam and CIC Saipan’s unstable underwriting results are “attributed to volatile loss ratios and significant acquisition costs. In addition, due to their reserving practice, the companies’ levels of loss provisions were less than initially estimated by the appointed actuary. Reserve adjustments by the end of fiscal year 2009 have partially contributed to the increase of the loss ratios of CIC Guam and CIC Saipan and to the contraction of the surplus by 8.5 percent compared to 2008 for CIC Guam.” Best added that it expects the “underwriting performance to remain unstable in the near term for CIC Guam and CIC Saipan.” Best also noted that “Aon is the single distribution channel of CIC Guam and the major premium contributor of CIC Saipan. The initial agreement with Aon has led to a significant amount of overdue insurance receivables, putting a strain on the growth of the admitted assets and surplus, which pressures management to decrease the level of overdue receivables from its strategic partner.”

A.M. Best Co. has revised the rating outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Hong Kong-based Taiping Reinsurance Company Limited (TPRe). The ratings reflect TPRe’s “consistently profitable underwriting performance, prudent reserving practice and strong capitalization,” said Best. TPRe has “maintained profitable and stable underwriting results with a combined ratio below 100 percent over the past five years, even though it was hit by several catastrophe events in 2005. TPRe’s stable and consistent operating performance has demonstrated its prudent underwriting control and risk management practice. TPRe’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), supports its current ratings. The company’s BCAR was supported by its prudent reserve level.” As offsetting factors Best noted TPRe’s “exposure to worldwide catastrophic risk and volatility.” In addition Best said it “recognizes the high financial leverage level of TPRe’s parent company, China Taiping Insurance Holdings Company Limited (CTIH). CTIH has a relatively high financial leverage. However, the operating results of CTIH’s major associated companies—Tai Ping Life Insurance Company, Limited and Taiping General Insurance Company Ltd in China—have improved in recent years.”

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