Ratings: Bahrain Kuwait, Twin Bridges/Majestic, GTA Assur, Bahamas First, swisspartners (SPV & SPC)

November 28, 2011

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Bahrain Kuwait Insurance Company B. S. C. (BKIC), both with stable outlooks. The ratings of BKIC “reflect its strong risk-adjusted capitalization, excellent track record of technical profits, conservative investment strategy and its good domestic franchise,” said Best. “However, the ratings also take into account the developing nature of the company’s enterprise risk management framework and its reliance on reinsurers. The ratings also benefit from an enhancement due to BKIC’s position and importance within the Gulf Insurance Company K.S.C. (GIC) group.” Best added that in its opinion, “BKIC’s business profile is good operating in both Bahrain and Kuwait. Whilst BKIC holds a leading position in Bahrain and is a prominent insurer in Kuwait, its profile has remained stagnant in recent years as the company aims to increase its presence in these relatively small markets. Furthermore, BKIC has a diversified portfolio on a gross premium basis mainly geared towards property and engineering risks; however, the company’s net retention levels remain low at 31.8 percent.” Best said it also “believes BKIC’s prospective risk-adjusted capitalization is strong with sufficient room to absorb management’s anticipated business growth. In fact, BKIC’s risk-adjusted capital position is set to strengthen going forward as internal capital generation outpaces growth. BKIC has an excellent track record of profitability driven by its sound underwriting performance across all lines of business. In 2010, the company recorded net income of BHD 4.1 million ($11 million) and a combined ratio of circa 65 percent, benefitting from inward commissions given its low retention levels. Furthermore, net income is supported by consistent investment returns between 2 percent and 3 percent due to BKIC’s conservative investment strategy, which is geared towards fixed income securities and deposits.” Best described BKIC’s enterprise risk management as in a “developing stage, as the company remains highly reliant on its panel of reinsurers for expertise. Though work is underway at the group level, the company is currently lacking any capital modeling capabilities; however, this is mitigated by the strength of BKIC’s capital position. In recent years, GIC has been steadily increasing its shareholding in BKIC and currently owns a 56 percent majority stake. Also, GIC has provided BKIC with strong support, including the development of a group reinsurance program and formulation of group-wide enterprise risk management.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘C-‘ (Weak) from ‘C+’ (Marginal) and issuer credit rating (ICR) to “cc” from “b-” of Twin Bridges (Bermuda) Ltd. Best also downgraded the ICRs to “d” from “c” of Twin Bridges’ ultimate parent, Bermuda-based Majestic Capital, Ltd, as well as Majestic Capital’s intermediate holding companies, San Francisco-based Embarcadero Insurance Holdings, Inc. and Delaware-based Majestic USA Capital, Inc. Best also affirmed all debt ratings of Embarcadero and Majestic USA, and has removed the FSR and ICRs from under review with negative implications and assigned a negative outlook. Best subsequently withdrew all of the ratings in response to management’s request to no longer participate in Best’s interactive rating process. “The rating actions on Majestic Capital, Embarcadero and Majestic USA reflect each company’s filing for bankruptcy,” Best explained. “Twin Bridges’ ratings reflect Majestic Capital’s bankruptcy and the uncertainties surrounding its current financial condition as the most recent financial statements provided by management were as of year-end 2010. The following debt ratings have been withdrawn: Majestic USA Holdings, Inc. – “d” on $35 million 8.65 percent junior subordinated debt securities, due 2036; Embarcadero Insurance Holdings, Inc. – “d” on $8 million LIBOR + 4.2 percent surplus notes, due 2033.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘B’ (Fair) and issuer credit rating of “bb+” to Nigeria-based Guaranty Trust Assurance plc (GTA Assur), both with stable outlooks. The ratings of GTA Assur reflect its “strong risk-adjusted capitalization, good business profile and strong underwriting performance,” said Best. However, Best added that GTA Assur’s investment strategy, which has a higher than usual exposure to riskier asset classes,” should be considered as an offsetting factor.” In addition Best said that “some uncertainty exists as to the impact of new ownership on the post acquisition strategy of the company. The ratings of GTA Assur also incorporate a view of its exposure to the very high political and financial system risks associated with its operation in Nigeria. GTA Assur maintains strong risk-adjusted capitalization, supported by a large capital base. At year-end 2010, the company reported shareholders’ funds of NGN 13.2 billion (approximately $90 million). Retained earnings have been constrained in recent years due to the payments of dividends, which have been substantial as demonstrated by a three-year average dividend payout ratio (relative to post-tax profits) of 74 percent.” Best added that “despite the expectation for dividend payments to remain high, GTA Assur’s risk-adjusted capitalization is expected to continue being supportive of its ratings. GTA Assur’s capital management strategy is supported by a prudent reserving approach and its reinsurance program, which is placed with reinsurers with secure ratings. The company also employs an adequate risk management approach, underpinned by a rigorous reporting process, which supports the identification and control of its risk exposures. An offsetting rating factor relates to GTA Assur’s investment strategy. Investments in equities, managed funds and property represent approximately 40 percent of total investments. This creates the potential for volatility in risk-adjusted capitalization.” Best also indicated that it “understands that property investments will be reduced going forward. Operating performance has been supported by the strong performance of the non-life account (representing 70 percent of gross written premiums), as demonstrated by a five-year average combined ratio of 74 percent, although tempered by the volatile technical results of the life portfolio and subdued investment earnings, due to the low interest rates and weakened conditions of the financial markets. In contrast with its peers, provisions for outstanding premiums owed by debtors continue to have a low impact on overall performance, highlighting the company’s tight credit control policy. At year-end 2010, outstanding volumes of premium debtors represented 12 percent of gross written premiums.” In addition Best noted that “GTA Assur maintains a good business profile as a composite insurer based in Nigeria. The company benefits from its strong brand and presence, through its various branch offices and ranks within the top five insurers in the country, by premium income. GTA Assur benefits from its bancassurance arrangement with its former parent, Guaranty Trust Bank (GTB), which will support the company’s ongoing penetration into the retail market, a largely underdeveloped segment of the Nigeria insurance market. Retail business represents approximately 25 percent of gross written premiums. GTA Assur was acquired in October 2011 by a consortium of six members comprising three private equity firms and three European owned development financial institutions. The consortium bought a 67.68 percent share of the company previously owned by GTB, a top five ranking financial institution in Nigeria with a strong footprint across West Africa. The remaining shares of GTA Assur are publicly owned.” Best said it “believes that there is potential for GTA Assur’s post acquisition strategy to be affected as a result of new ownership and will continue to closely monitor the company’s prospective growth and performance under its new shareholder structure.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Bahamas First General Insurance Company Limited (BFG), both with stable outlooks. Best also affirmed the FSR of ‘A-‘ (Excellent) and ICR “a-” of Cayman First Insurance Company Limited (CFIC); however the outlook for these ratings is negative. Both companies are subsidiaries of Bahamas First Holdings Limited (BFH). Best explained that as the “primary holding and major source of earnings for BFH, the ratings of BFG reflect its continued excellent capitalization, favorable operating performance and leading market share in the Bahamian market. These factors are supported by BFG’s conservative catastrophe program, underwriting controls, local market expertise and solid risk management programs. These positive rating factors are offset by BFG’s geographic concentration and catastrophe exposure, particularly to hurricanes in the Caribbean. The ratings of CFIC recognize its improved capitalization and positive non-health operating results along with its expertise in the Cayman market. The negative outlook on CFIC acknowledges the drag on its operating results due to the losses emanating from the company’s accident and health lines of business. BFH’s management has developed and implemented strategies to reduce these losses and their effect on earnings.” Best said it would “continue to monitor the effectiveness of these strategies and CFIC’s integration into BFH’s existing operations.” The rating agency also indicated that “while the rating outlook for BFG is stable, positive rating actions could occur if the company exhibits sustainable long term improvements in operating performance coupled with improvements in the Bahamas macroeconomic environment. Negative rating triggers could include protracted adverse operating results that are exacerbated by a large catastrophic event. In regards to CFIC, a positive outlook revision trigger would include improved operating results for its health and accident book of business and organic surplus appreciation. Negative triggers could include equity erosion, increased operating leverage from its current levels as well as a decline in operating performance.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating (ICR) of “bbb+” of swisspartners Versicherung AG (SPV), which is based in Vaduz, Liechtenstein, both with stable outlooks. Best concurrently withdrew the ratings due to the company’s request to no longer participate in Best’s interactive rating process. The rating affirmations reflect SPV’s “strong risk-adjusted capitalization and its ownership link with Liechtensteinische Landesbank AG, which would likely offer financial support and other services should the need arise,” Best noted. However best cited the company’s “volatile business profile and limited enterprise risk management” as offsetting factors.

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of Cayman Islands-based swisspartners Insurance Company SPC Limited, both with stable outlooks. Best explained that swisspartners SPC is “owned by swisspartners Investment Network AG, whose majority shareholder is Liechtensteinische Landesbank AG (LLB).” Best has withdrawn the ratings due to the company’s request to no longer participate in its interactive rating process. “The rating affirmations reflect swisspartners SPC’s strong risk-adjusted capitalization supported by continued earnings and its ownership link with LLB, which would likely offer financial support and other services should the need arise,” said Best. Offsetting rating factors include the company’s volatile business profile and a limited enterprise risk management program.”

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