Ratings Recap: Eurasia, Energas, Compania Internacional

March 1, 2011

A.M. Best Europe – Rating Services Limited has upgraded the issuer credit rating (ICR) to “bbb+” from “bbb” and affirmed the financial strength rating (FSR) of ‘B++’ (Good) of Kazakhstan’s Eurasia Insurance Company JSC, both with stable outlooks. Best said the upgrade reflects a “strengthened level of risk-adjusted capitalization together with improved financial performance and the maintenance of a good competitive position within the local insurance market. Eurasia’s ultimate parent remains significantly exposed to the local Kazakh banking sector. Eurasia’s strong level of risk-adjusted capitalization improved further in 2010, with the full retention of profits and a marginal reduction in net premium income.” Best added that it “anticipates that the company’s relatively high level of capital and surplus, equal to KZT 42 billion ($283 million) at the end of 2010, is to be further supplemented by the retention of earnings over the medium term in order to support any future growth in premium income. Eurasia’s capital position is exposed to reinsurers of low or unknown credit quality, although the company has taken steps to reduce this exposure. In 2010, Eurasia saw a decrease in gross premium income of around 17 percent, driven by a reduction of foreign inwards reinsurance business. At the same time, the company’s share of the Kazakh market fell marginally to 12 percent, with the local market experiencing overall growth of 16 percent. The decline in Eurasia’s premium income is largely a result of the company not renewing several inwards reinsurance contracts, which it believed to be underperforming.” However, “results for 2010 are expected to be excellent for Eurasia,” best continued, “with pre-tax profits likely to reach KZT 12 billion ($81 million). This has predominantly been caused by significant reserve releases, which have driven the company’s combined ratio down to 27.1 percent after a high of 94.5 percent in 2009.” Best added that although it believes that “volatility in underwriting performance is strongly linked with Kazakh reserving regulations and the company’s changing business profile, a good level of underwriting profitability is anticipated in future years. A.M. Best’s analysis of Eurasia’s immediate parent company, Eurasian Financial Company JSC (EFC), draws attention to its significant exposure to the local Kazakh banking sector through ownership of the Eurasian Bank, which is regarded to be of vulnerable credit quality.”

A.M. Best Co. has assigned a financial strength rating of ‘A’ (Excellent) and an issuer credit rating of “a” to Malaysia’s Energas Insurance (L) Limited, both with stable outlooks. The ratings reflect Energas’ “adequate capitalization, strong reinsurance protection and its unique role as the primary insurance carrier for its ultimate parent, Petroliam Nasional Bhd (Petronas),” Best explained. Energas is a captive insurer of Petronas. Based on Best’s Capital Adequacy Ratio (BCAR), the rating agency said it believes that Energas’ “risk-adjusted capitalization is adequate to support the current ratings. According to the company’s forecast, its underwriting leverage (net premium written to capital and surplus) will be maintained at below 0.5 times in the next five years. As at March 31, 2010, the company’s underwriting leverage stood at 0.47 times. Energas has a stop-loss reinsurance program to protect the company’s aggregate loss exposure from a catastrophe event and for the whole account.” Best also indicated that it believes that the “underwriting risk exposure for Energas is limited, and the bottom line of its operating results could be maintained positively in a worst case scenario. The ratings also reflect the strong level of commitment on the part of Petronas, whose management incorporates Energas as an integral component in the overall risk management program of the group. In addition, Petronas has also provided a financial guarantee to Energas.” As partial offsetting factors best cited Energas’ “relatively small underwriting portfolio. Energas’ loss ratio in the past five years was in the range of 32 percent to 89 percent. Annual fluctuations in the loss ratio are due to the relatively small underwriting portfolio, as several claims in a year will have a relatively larger impact on the underwriting results.”

A.M. Best Co. has upgraded the financial strength rating to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating to “a-” from “bbb+” of Panama’s Compania Internacional de Seguros S.A. (CIS) (Panama), and has consequently revised its outlook on both ratings to stable from positive. Best said the rating upgrades are based on “CIS’ consistently favorable operating results, excellent risk-based capitalization and strong market profile. As one of the largest insurers in Panama, CIS utilizes its comprehensive risk management procedures and local market expertise to enhance its operating performance. Strong underwriting results are complemented by consistent investment income derived from a conservative investment portfolio, both of which have contributed to substantial surplus appreciation over the past five years. Additionally, the company’s prudent underwriting philosophy and diversified book of business have been generally profitable across both property/casualty and life/health business segments over the past five years, with an average combined ratio of 94 percent during that period. CIS also maintains liquidity and solvency margins in excess of the requirement of the Panamanian Superintendent of Insurance.” As partial offsetting factors Best noted “CIS’ challenge of operating in a relatively limited insurance market as well as operating in a country that A.M. Best considers to have an elevated level of country risk.”

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