Ratings: AmerInst, Emirates, Jamaica Int’l., Salama/BEST RE, Colonial, Trust Re

September 15, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of ‘a-‘ of Bermuda-based AmerInst Insurance Company, Ltd., both with stable outlooks. AmerInst is a wholly owned subsidiary of AmerInst Insurance Group, Ltd. The ratings reflect AmerInst’s “strong capitalization and experienced management team as well as its niche expertise as a reinsurer of professional liability policies,” Best explained. As partial offsetting factors Best cited the company’s “narrow spread of underwriting risk, in addition to the execution risk associated with the implementation of a new business plan. AmerInst intends to continue under its new business plan to employ a conservative reserving methodology under which it historically booked to a higher loss ratio than that of its primary carrier.” However, the report also said that AmerInst has met Best’s “higher capitalization requirements, which mandate a more conservative level of risk-based capital for a new business plan.” Best will continue to monitor AmerInst as it implements this business plan. “Any material negative deviation from the new business plan in terms of management, earnings, capitalization or risk profile could result in negative rating pressure.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of ‘a-‘ to Emirates Insurance Company P.S.C. (EIC), both with stable outlooks. The ratings of EIC reflect its “strong level of risk-adjusted capitalization, very good track record of technical profitability and established position in the United Arab Emirates market.” As an offsetting factor Best noted the company’s “weak investment strategy, with significant concentration in equities.” Best said that in its opinion “EIC’s risk-adjusted capitalization is strong benefitting from capital and surplus of AED 789 million ($ 215 million) in 2010, relative to a low level of underwriting risks. Additionally, EIC’s capital position is supported by sound reinsurance protection. However, capital requirements are largely driven by EIC’s investment activities, with a high concentration in equities, which is a concern.” From Best’s viewpoint, “while EIC’s level of risk-adjusted capitalization is sufficiently strong to absorb the concentration and fluctuation in its investment activity, it will give rise to volatility in its capital position and earnings, and thereby require prudent capital management.” Best added, however, that it acknowledges the “efforts made by the company in recent years to de-risk its investment portfolio, although exposure to equities and private investment funds remain high, above 50 percent of invested assets. Prospective levels of risk-adjusted capitalization are likely to be driven by improvements in its investment profile and dividend policy. EIC has demonstrated a very good track record of technical profitability in recent years, with technical profits rising to AED 55 million ($15 million) in 2010. This has been achieved through strict underwriting practices and careful selection to attract quality business in a competitive market environment. EIC produced a loss ratio below 60 percent in 2010 with robust performance across most business segments. A very good combined ratio of approximately 75 percent has been maintained, with expenses benefitting from significant inward reinsurance commissions.” Best added that in its opinion, EIC has “become a prominent player in the United Arab Emirates’ general insurance market with written premiums of approximately AED 630 million (USD 171 million) in 2010, establishing itself as a top five player. However, there is some pressure on EIC’s market position, as it may weaken over the coming years, with increased competition and pressure on pricing. As such EIC is expected to concentrate on underwriting profitability over premium volume. EIC has a diversified portfolio in line with local market characteristics, with a low retention level of 40 percent, mainly geared towards motor.” Best said it views EIC’s risk management framework as moderate, with good controls in place, particularly for underwriting and operational risks. However, there are concerns regarding investment risk management, for which EIC is aiming to address the deficiencies over the next three years.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of ‘bbb’ of Jamaica International Insurance Company Limited (JIIC). The report explained that the revised outlook is based on JIIC’s “continued underwriting losses, compounded by depressed investment income levels expected in the future, due to lower interest rates caused by the restructuring of the Jamaican bonds. JIIC’s investment income, which mitigated underwriting losses in the past, will be reduced going forward.” Best added that, “although JIIC’s management team has implemented strategies to improve underwriting results,” Best is uncertain of the effectiveness of these strategies given the current challenges in the Jamaican insurance market. As positive rating factors best cited JIIC’s “continued favorable capitalization and the financial flexibility as a result of the support and commitment of its parent, GraceKennedy Limited (GK Group), one of the leading business conglomerates in the region. GK Group is publicly traded on the Jamaican and Trinidadian stock exchanges. Historically, JIIC reported consistent overall earnings as a result of its steady investment income, and this has enabled the company to consistently enhance its capital position. The company continues to maintain adequate risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). As an integral member within the GK Group, JIIC enjoys strong parental support and commitment as evidenced by GK Group’s past capital contributions and its stated willingness to make additional funds available should the need arise. Offsetting these positive rating factors is JIIC’s lack of geographic diversification, the continuing challenges in the Jamaican macroeconomic environment and the high cost of the company’s reinsurance program, due to its dependence on reinsurance for earnings and surplus protection from catastrophic events.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings of ‘a-‘ of Islamic Arab Insurance Company (Salama), which is based in the United Arab Emirates, and its subsidiary, BEST RE (L) Limited, which is based in Malaysia. The outlook for all ratings remains stable. The ratings reflect Salama’s “good business profile, stable underwriting profitability and strong risk-adjusted capitalization, in addition to BEST RE’s importance to the overall group,” Best said. “Salama benefits from a well diversified business profile. Geographically, along with BEST RE’s reinsurance business in Southeast Asia and its own direct insurance portfolio in the United Arab Emirates, Salama has subsidiaries and affiliates writing direct insurance business in Algeria, Egypt, Senegal, Jordon and Saudi Arabia. Salama’s focus on property business is gradually reducing as the significance of its smaller subsidiaries across the Middle East and North Africa region increases. While Salama’s overall level of profitability has fluctuated over recent years,” Best said it “considers the underwriting performance to have been maintained at a stable level. Between 2006 and 2010, Salama’s return on equity (ROE) has fluctuated between -0.6 percent and 15.3 percent, while its combined ratio for life and non-life business has fluctuated between 88 percent and 95 percent over the same period. The volatility in overall earnings is largely a result of market conditions. In 2010, Salama achieved a combined ratio for life and non-life business of 93.5 percent and a ROE of 3.7 percent.” Best added that it expects the company to “gradually improve both underwriting and overall performance over time as the company grows.” Best also considers that “Salama’s level of risk-adjusted capitalization is likely to remain at a strong level over the medium term. Salama’s reinsurers/retrocessionaires generally hold an A.M. Best FSR of ‘A-‘ (Excellent) or above, and the group maintains a relatively conservative investment allocation. A significant proportion of future profits are expected to be retained in order to support business growth.” Best said the ratings of BEST RE reflect its “significance to Salama, in addition to the company’s good business position, adequate level of risk-adjusted capitalization and stable operating performance.” In addition Best considers that “BEST RE is core to the business profile of Salama. All of Salama’s general reinsurance business is focused within BEST RE, and in 2010, it accounted for around two thirds of the group’s gross written premiums. Furthermore, BEST RE is expected to benefit from a capital injection from Salama of $50 million over the short term.” Best also indicated that it “anticipates that BEST RE will maintain a stable combined ratio of around 90 percent over the coming two years. While risk-adjusted capitalization is currently adequate for the rating level, underwriting risks are likely to develop as the company grows. Increased capital requirements are likely to be offset by the capital injection from its ultimate parent.

A.M. Best Co. has affirmed the financial strength ratings of ‘A-‘ (Excellent) and issuer credit ratings of ‘a-‘ of the life/health and property/casualty operating subsidiaries of Colonial Group International Limited. The outlook for all of the ratings is stable. Colonial Group is a wholly owned intermediate holding company of Edmund Gibbons Limited, the ultimate parent company. All companies are domiciled in Bermuda, unless otherwise specified. The rating affirmations reflect the operating subsidiaries’ “adequate risk-based capitalization, the consistent increase in their total consolidated equity and diversified business profiles, with their focus being on life/health and property/casualty markets in Bermuda, the Bahamas, Cayman Islands and the Caribbean,” Best explained. Colonial Group’s life/health subsidiaries have “reported favorable underwriting results in their most recent year with the exception of Colonial Life Assurance Company Limited, which reported a small net profit in 2010. Although considerably improved compared to recent years, the company is likely to revert to reporting a net loss for the current year. Colonial Medical Insurance Company Limited and Atlantic Medical Insurance Limited (Bahamas) are regional companies with a continued strong presence in their respective health markets. On a net income and underwriting basis, the life/health subsidiaries’ combined results were higher in 2011 and 2010 from previous years, but top line growth remains a challenge, mostly due to a weak economic environment. Within the property/casualty operations, Colonial Group’s three operating subsidiaries, Colonial Insurance Company Limited, British Caymanian Insurance Company Limited (Cayman Islands) and Security and General Insurance Company Limited (Bahamas), have generally demonstrated good underwriting results, improved operating performance trends and continuing parental support. Furthermore, Colonial Group benefits from these subsidiaries’ reinsurance leverage to manage their property/casualty risks, while growing direct premium revenues in their core markets. Partially offsetting these rating strengths are Colonial Group’s significant concentration risk in the volatile health line of business in several geographic regions, vulnerability to frequency and severity of catastrophic events from the property/casualty risks within their markets and the large amounts of inter-company transactions.”

A.M. Best Europe – Rating Services Ltd. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating (ICR) of ‘a-‘ of Bahrain’s Trust International Insurance & Reinsurance Company B.S.C. (c), or Trust Re, both with stable outlooks. Best said the ratings reflect Trust Re’s “strong level of risk-adjusted capitalization, robust operating performance and developing business profile.” The report also noted that even though “there has been a decline in Trust Re’s risk-adjusted capitalization in 2010 driven by premium growth in excess of 15 percent, relative to an increase in shareholders’ funds of 7 percent ($206 million), Trust Re’s capital position continues to remain strong and supportive of the current ratings. Prospective risk-adjusted capitalization is anticipated to remain robust and expected to be driven by dividend policy and growth plans. Moreover, Trust Re’s management is proactively looking at measures to improve capital efficiency, including the de-risking of its investment portfolio. Trust Re has continued to produce robust technical results in 2010 of $18 million.” Best also observed that Trust Re’s underwriting results are “underpinned by a good loss ratio below 65 percent with a strong performance on its core facultative book, including energy (offshore and onshore) and property risks. Prospectively, the combined ratio is likely to remain at approximately 90 percent. A significant driver is the sound reserving policy and disciplined underwriting, which entails lower volatility of future earnings. Moreover, the company is supported by a stable expense ratio below 25 percent and steady returns on investments between 4 and 6 percent, benefitting from Trust Underwriting Limited, which is viewed as a strategic investment by the company, allowing exposure to the Lloyds of London market. Furthermore, Trust Re has a good developing business profile as a specialist underwriter of energy and property reinsurance in the Arab and Afro-Asian markets.” Best added that in its opinion, “Trust Re has improved its enterprise risk management process, and A.M. Best expects further development of the framework to be made. A.M. Best recognizes the measures taken by the company and views Trust Re’s risk management above par for the region.”

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