Ratings Recap: IGIUK, MAPFRE Re (Panama), Arab Misr, Gulf, Caribbean Alliance

June 23, 2011

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to International General Insurance Company (UK) Limited (IGIUK), both with stable outlooks. The ratings reflect “prospective strong risk-adjusted capitalization; technical profitability within the second year of operation; and the company’s conservative investment strategy, which is likely to mirror the approach taken by its parent, International General Insurance Company Limited (IGI),” Best explained. The ratings also consider the “concentration risk in marine business. Additionally, the ratings incorporate IGIUK’s position within the IGI group and the explicit support provided by its parent, which fully guarantees all of IGIUK’s liabilities.” Best pointed out that “IGIUK’s business plan relies on the transfer of a portion of business currently being written by IGI to the new subsidiary on a renewal basis. IGIUK will form an important part of the IGI group once fully operational, accounting for around one-third of the group’s total business by 2013, and will be underwriting the majority of marine, financial institution and general aviation business for the group. Once fully operational, 54 percent of IGIUK’s net premiums written will be concentrated in marine, a business line in which IGI has experienced negative results in previous years.” However, Best also noted the “efforts made by management to restructure this business in recent years, with a change in personnel, tightening of underwriting guidelines and a reduction in volumes, leading to considerable improvement in performance in the past two financial years.” Best added that it “believes it is fair to assume that IGIUK will inherit a profitable portfolio of business, given the sound performance of other business lines. As such, Best expects technical profitability in 2012, breaking even in 2011.” Best said that in its opinion, “IGIUK’s projected risk-adjusted capital position by year-end 2013 is strong, allowing room for further growth with the support of profit retention. Best also expects “IGIUK to maintain a conservative approach to investments, in line with the wider group’s investment strategy. The company’s investment portfolio currently consists of cash and highly rated fixed income securities.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of MAPFRE PANAMA, SA (formerly Aseguradora Mundial S.A.), both with stable outlooks. The rating affirmations reflect MAPFRE PANAMA’s “solid risk-based capitalization, strong operating performance and local market expertise,” said Best. The company offers various products in the Panamanian and Central American markets, with a current business mix on a gross premium basis of approximately 55 percent life/health and 45 percent property/casualty.” Best also noted that MAPFRE PANAMA’s management team “has established a formal risk management system that enables the company to selectively write risk in all of its geographic areas. In addition, management has established a strong reinsurance program for most of its lines of business. As a result, MAPFRE PANAMA’s operating performance has produced positive underwriting results four of the last five years, while risk-based capitalization remains fully supportive of the current ratings and outlook.”In December 2009, MAPFRE PANAMA (then Aseguradora Mundial) announced that MAPFRE AMERICA, S.A. (MAPFRE) acquired 65 percent ownership of the company. Best indicated that, although it does not rate MAPFRE, “this acquisition is seen as a constructive development for the company.” As partial offsetting factors Best cited MAPFRE PANAMA’s “geographic risk concentration, along with operating in countries that Best considers to have elevated levels of country risk. Additionally, the Panamanian insurance market has been growing rapidly, and insurers like MAPFRE PANAMA must balance growth with underwriting discipline.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” to Egypt’s Arab Misr Insurance Group S.A.E. (AMIG), both with stable outlooks. The ratings of AMIG reflect its “good level of risk-adjusted capitalization, good financial performance and improving business position in Egypt,” said Best. “Furthermore, the ratings receive enhancement from implicit support of the parent company, Gulf Insurance Company K.S.C. (GIC) [See below]. An offsetting factor is AMIG’s marginal risk management framework.” Best noted that “AMIG’s capital position remains solid, benefiting from full earnings retention and low investment risk.” Best also said it has “given capital credit for its claims fluctuation reserves, which are deemed to be surplus to technical provisions, according to local regulation. AMIG’s prospective capital position is sufficiently strong to support its growth plans of up to 10 percent per annum over the next two years, factoring full earnings retention. There are concerns on a stressed basis, given the high exposures relative to net retention levels on property and engineering. This is partially mitigated by a good quality reinsurance program.” Best pointed out that AMIG has “seen a significant change in its performance and profile since being under the ownership of GIC, demonstrating improved profitability with pre-tax profits of EGY 25.7 million ($4.5 million) in 2010, compared to EGP 12.9 million ($2.9 million) in 2009. Despite growing faster than the market in recent years, the company has managed to maintain a prudent underwriting policy, take corrective measures on under-performing lines and identify suitable opportunities to improve profitability over the years. This has enabled AMIG to produce combined ratios between 85 percent-90 percent (excluding unallocated expenses) over the past two years and establish itself as the fourth-largest direct writer in Egypt, albeit with a 4.6 percent market share. Furthermore, AMIG’s technical profitability is supported by a conservative investment policy mainly allocated to cash and bonds.” Best said it views AMIG’s risk management on par with regional companies; however, the company requires further enhancement and development over the coming years in line with group strategy.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Kuwait’s Gulf Insurance Company K.S.C. (GIC), both with stable outlooks. Best said the ratings of GIC “reflect its strong regional business profile, good profitability and adequate level of risk-adjusted capitalization. Offsetting rating factors include a marginal level of enterprise risk management.” Best indicated that it considers GIC to have “a good business profile, given its strong competitive position within a number of countries in the Middle East/North Africa (MENA) region. In addition to GIC’s stand-alone and Gulf Life Insurance Company K.S.C’s (GLIC) operations in Kuwait, a strong market position also is maintained in Bahrain and Jordan via GIC’s subsidiaries, Bahrain Kuwait Insurance Company B.S.C. and Arab Orient Insurance Company. Additionally, in Egypt, GIC has consolidated its position as the market’s fourth largest insurer via its subsidiary, Arab Misr Insurance Group S.A.E.” [See above]. In addition Best noted that GIC’s group structure “allows it a good level of diversification both geographically and by line of business. An offsetting factor is the moderate level of country risk offered within a number of operating countries. GIC’s underwriting profits have remained strong in recent years and have been the driver of pre-tax profits. In 2010, GIC reported underwriting profits of KD 8.5 million ($30.4 million), a combined ratio of 82.7 percent and pre-tax profit of KD 10 million ($35.5 million).” Best anticipates that GIC will “maintain a strong level of underwriting profitability over the medium term.” The rating agency also said it believes that prospectively, “GIC is likely to maintain a robust level of risk-adjusted capitalization. Driving GIC’s capital requirements are its exposure to and concentration of unquoted investments. Supporting the company’s level of risk-adjusted capitalization is a group-wide reinsurance program of good credit quality that includes quota share, surplus and excess of loss protection.” In Best’s opinion, although GIC’s level of risk management is adequate, “the group lacks any sophisticated enterprise-wide risk management. Historically sound underwriting results are evidence of a robust risk management framework, while a lack of sophisticated catastrophe or capital modeling is of some concern.” However, Best also indicated that it “considers that GIC’s group-wide risk management framework is likely to become further embedded within all of its subsidiaries, and the group is committed to developing its enterprise risk management framework over the short to medium term.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Caribbean Alliance Insurance Company Limited (CAIC), which is based in Antigua and Barbuda. The outlook for both of the ratings is stable. The ratings reflect “CAIC’s continued strong capitalization, historically favorable operating results and conservative underwriting philosophy,” Best explained. “CAIC’s favorable underwriting performance and stable investment income have produced positive overall results, which have consistently contributed to surplus appreciation. Additionally, CAIC’s management team has extensive knowledge of the islands in which the company operates and maintains effective risk management.” As partial offsetting factors Best cited “CAIC’s geographic concentration of risk, high dependence on reinsurance and the challenging market conditions in the Caribbean marketplace. The company operates in competitive markets where local and large outside insurers continue to challenge established companies to maintain market share. CAIC’s book of business is exposed to both frequent and severe weather-related events affecting the Eastern Caribbean. However, the level of catastrophe risk is mitigated by CAIC’s conservative reinsurance program, which protects the company by reducing the net probable maximum loss to a manageable level.”

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