Ratings Roundup: Dah Sing, Kiln, Ghana Re

A.M. Best Co. has withdrawn the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based Dah Sing Insurance Company Limited (DSI), due to its business being transferred to Dah Sing Insurance Company (1976) Limited (DSI 1976), which is based in Hong Kong. It is an insurance company that is ultimately owned by Dah Sing Financial Holdings Limited. Prior to the transfer of its business to DSI 1976, DSI underwrote general insurance business in Hong Kong. In October 2010, Dah Sing Financial Holdings Limited acquired Summit Insurance (Asia) Limited, which was renamed Dah Sing Insurance Company (1976) Limited on April 19, 2011. All business carried by DSI, including all outstanding liabilities, was transferred to DSI 1976 by December 9, 2011 with the approval of the Office of The Commissioner of Insurance in Hong Kong. DSI ceased to carry on any general insurance business upon the completion of the business transfer and currently is in the process of withdrawing the relevant license.

A.M. Best Europe – Rating Services Limited has affirmed and withdrawn the issuer credit rating of “bbb+” of the UK-based Kiln Group Limited, as well as the debt ratings of “bbb” on $30 million and $35 million floating rate subordinated bonds issued by Kiln. Kiln is the non-operating intermediate holding company of R.J. Kiln & Co Ltd, and of the Lloyd’s corporate member of Syndicates 510, 807 and 308. The ultimate parent company of Kiln is Japan’s Tokio Marine Holdings, Inc. These rating actions follow the redemption and delisting of both tranches of debt issued by Kiln from the Jersey Stock Exchange.

A.M. Best Europe – Rating Services Limited has downgraded the issuer credit rating (ICR) to “bb” from “bb+” and affirmed the financial strength rating of ‘B’ (Fair) of Ghana Reinsurance Company Limited, and has revised its outlook on both ratings to stable from negative. The downgrading of the ICR of Ghana Re reflects its “weakened business profile within its core market following the removal of the compulsory legal cessions, which obliged insurers in Ghana to cede 20 percent of their business written to Ghana Re,” best explained. The revision of the outlook to stable is “supported by the expectation that Ghana Re will continue to maintain risk-adjusted capitalization at a sufficiently strong level to support its business plans. Ghana Re’s business volumes continue to be negatively affected by the repeal of the compulsory legal cession in 2008, despite the company’s efforts to retain business by introducing special quota share arrangements, which offer high commissions.” For 2011 Best expects Ghana Re to report consolidated gross written premiums of between GHC 40 million [$23.16 million] and GHC 45 million [$26.05 million], a decline of approximately 20 percent since year-end 2008. Best also noted that to “counteract the impact of its diminishing business profile in Ghana, the company seeks to focus its expansion in other African markets, largely supported by its developing presence through recently opened branch offices in Cameroon and Kenya. A rise in gross written premiums of approximately 25 percent is expected in each of the next two years.” Given the high level of competition and Ghana Re’s limited presence in some of its targeted markets, Best said it believes that there is “significant execution risk associated with its planned expansion. Although premium volumes from Ghana Re’s outstanding debtors have fallen since the removal of the compulsory cessions, the size of outstanding premium debtors relative to the size of the balance sheet and written premiums remains a concern. Premium volumes from outstanding debtors are expected to represent approximately 60 percent of gross written premiums at year-end 2011 (2010: 57 percent).” In Best’s view, “adequate procedures are not yet in place to improve premium collection. Ghana Re’s operating performance remains good. A pre-tax profit of approximately GHC 20 million [$11.577 million] is anticipated in 2011 (2010: GHC 16.8 million [$9.725 million]) underpinned by low claims activity during the year and lower expenses resulting from a number of insurers non renewing business through the special quota share arrangement.” Best also indicated that it “remains concerned over future underwriting profitability, given the company’s rapid growth plans into non-core regions. Ghana Re operates predominantly as a non-life reinsurer (representing approximately 95 percent of its business), with business derived from Ghana currently accounting for around 70 percent of gross written premiums. The company maintains a fairly diversified portfolio, with fire and motor business representing approximately 70 percent of its underwriting portfolio. Ghana Re has a limited distribution network owing to the direct nature of the Ghanaian commercial market.” However, Best added that it “expects that the spread of its distribution channels will improve as the company strengthens its relationships with existing brokers to support expansion outside Ghana. Upward rating pressures may arise in the medium term if there are improvements in Ghana Re’s business profile whilst maintaining strong risk-adjusted capitalization and a good underwriting performance. Downward rating pressures may be triggered by a worsening of Ghana Re’s risk-adjusted capitalization or deterioration in its business profile. In addition, an increase in the country risk profile of Ghana may also have a negative impact on its ratings.”