Ratings Roundup: SHC Capital, TP Re, RSA (Bahamas)

January 11, 2012

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Singapore-based SHC Capital Limited, both with stable outlooks. The ratings reflect SHC Capital’s “adequate risk-adjusted capitalization (as measured by Best’s Capital Adequacy Ratio [BCAR]) for fiscal years 2009 and 2010 and the strong management expertise,” Best said. “The ratings also acknowledge the current management’s initiatives to improve the underwriting performance, prudent reserving practice and conservative investment strategy. Under SHC Capital’s current management, of which many of the members joined in 2007 and 2008, the underwriting result has turned around since 2009. The company has steadily reported more favorable underwriting profitability year over year under the management’s initiatives, which recognizes the strong management expertise. In addition, the combined ratio has stabilized at the mid-80 range since 2009. The current underwriting performance is anticipated to be sustainable due to management’s constant monitoring of the performance by line of business and improvement of efficiency and productivity.” In addition best noted that “SHC Capital has a prudent reserving practice, which enables it to constitute a reserving buffer. The company also has a conservative investment strategy to support the relatively short-tailed nature of its insurance liabilities.” As partial offsetting factors Best cited the “company’s small absolute capital and potential volatility in its capital position if the call option with PT Asuransi Parolamas (Indonesia) were to be exercised in full. Another offsetting factor includes the soft market conditions in Singapore.”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Bermuda-based Third Point Reinsurance Ltd., both with stable outlooks. Best said the ratings of TP Re are based on its “excellent risk-adjusted capitalization, experienced management team and prudent business plan.” As partial offsetting factors Best cited the “start-up nature of the company, the greater investment risk associated with an alternative investment strategy, as well as the increased competition in the reinsurance marketplace that may challenge some of the tenets of TP Re’s business plan.” Best also said it is concerned that there “is a possibility that TP Re could be exposed to a confluence of events that will test its capital strength. Due to the underwriting risk coupled with the asset risk present in an alternative investment strategy, there could be a duplicative result that could adversely affect risk-adjusted capital. However, TP Re’s low underwriting leverage, experienced underwriting team, partially hedged nature of the portfolio along with its 16 year successful investment track record help mitigate these concerns.” Best noted that the assets of TP Re “will be managed by Third Point LLC, a New York based SEC registered investment manager with over $7.6 billion of assets under management. TP Re’s assets will be in a separate portfolio within Third Point LLC and will not be comingled with other investors at Third Point LLC.” In addition, Best said it anticipates that “TP Re’s management will be challenged by competition from established reinsurers as well as other start-up entities. The addition of more capacity into an already overcapitalized reinsurance marketplace could pressure underwriting margins. Key rating triggers that could result in positive rating actions would be TP Re meeting and/or exceeding its business plan over the long term. Key rating triggers that could result in negative rating actions would be TP Re not executing its business plan over the long term.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” RoyalStar Assurance Limited (RSA), which is based in Nassau, Bahamas, both with stable outlooks. The ratings reflect RSA’s “consistent overall profitability, excellent capitalization and established presence within the Caribbean market,” Best explained. “RSA continues to produce positive operating results, which are a function of the company’s prudent underwriting philosophy and steady stream of investment income.” However, best also pointed out that since “RSA writes all of its business in the Caribbean, it is exposed to frequent and severe weather-related events. Although this makes RSA somewhat dependent on reinsurance as part of its overall risk management program, the company’s solid reinsurance program reduces its net probable maximum loss to a manageable level.” As partial offsetting factors Best cited “RSA’s geographic concentration, dependency on reinsurance, continued exposure to weather-related catastrophe events and sluggish economic conditions in the Bahamas. Furthermore, the Bahamas and other Caribbean insurance markets have become increasingly competitive as indigenous and outside insurers seek to gain market share in the region. Key rating drivers that may lead to positive rating actions on RSA include continued strong underwriting results in conjunction with surplus appreciation and improvements in the Bahamas’ macroeconomic environment. Negative rating triggers could include prolonged adverse operating results that are exacerbated by a series of large catastrophic events.”

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