Ratings Recap: Omega Insurance, Al Ittihad, Alliance

August 22, 2012

A.M. Best Europe – Rating Services Limited has removed from under review with negative implications and affirmed the issuer credit rating (ICR) of “bbb” of Bermuda-based Omega Insurance Holdings Limited, an intermediate parent company of Omega Underwriting Agents Limited, the managing agent of Lloyd’s Syndicate 958, as well as the ratings for Omega Specialty Insurance Company Limited (OSIL), based in Bermuda, and Omega US Insurance, Inc. (OUS), headquartered in Schaumburg, Illinois. Best has assigned a negative outlook to all of the ratings, and has withdrawn the ICR of Omega, following the completion on August 20 of its acquisition by Lloyd’s insurer Canopius Group Limited. Best added that “Omega has been delisted and is now the intermediate holding company of the companies noted above and of Omega Dedicated Limited, which is a corporate member of syndicate 958.” Best also said, that syndicate 958’s financial strength rating (FSR) of ‘A’ (Excellent) and ICR of “a+” remain “unchanged at the Lloyd’s market level, and the FSR of ‘A-‘ (Excellent) and ICR of “a-” of OUS remain under review with negative implications pending further analysis of the Canopius Group by A.M. Best.”

A.M. Best Europe – Rating Services Limited has removed from under review with negative implications and affirmed the issuer credit rating (ICR) of “bbb” of Bermuda-based Omega Insurance Holdings Limited, an intermediate parent company of Omega Underwriting Agents Limited, the managing agent of Lloyd’s Syndicate 958, as well as the ratings for Omega Specialty Insurance Company Limited (OSIL), based in Bermuda, and Omega US Insurance, Inc. (OUS), headquartered in Schaumburg, Illinois. Best has assigned a negative outlook to all of the ratings, and has withdrawn the ICR of Omega, following the completion on August 20 of its acquisition by Lloyd’s insurer Canopius Group Limited. Best added that “Omega has been delisted and is now the intermediate holding company of the companies noted above and of Omega Dedicated Limited, which is a corporate member of syndicate 958.” Best also said, that syndicate 958’s financial strength rating (FSR) of ‘A’ (Excellent) and ICR of “a+” remain “unchanged at the Lloyd’s market level, and the FSR of ‘A-‘ (Excellent) and ICR of “a-” of OUS remain under review with negative implications pending further analysis of the Canopius Group by A.M. Best.”

A.M. Best Europe – Rating Services Limited has placed under review with negative implications the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of Lebanon’s Al Ittihad Al Watani (L’Union Nationale) Societe Generale d’Assurances du Proche Orient sal. Best said it took the action because “Al Ittihad’s insurance license in Kuwait has been suspended. Moreover, there are concerns regarding, the non-disclosure of motor claim liabilities in the country.” Best added that it “understands that the Kuwaiti regulator uncovered the problem during its investigation into a number of complaints from local motor insurers having difficulties making subrogation recoveries from Al Ittihad. Kuwait accounted for approximately one-fifth of Al Ittihad’s business and it remains uncertain what medium to long-term impact the recent events will have on the company.” In addition best noted that the Kuwaiti authorities have instructed an independent party to audit Al Ittihad’s Kuwaiti operations.” Best said it understands that “a report of the auditors’ findings will be available by mid-September. Furthermore, Al Ittihad has now instructed an international auditor to conduct an audit of its entire operation.” In Best’s opinion these discoveries have “highlighted governance weaknesses and transparency issues at Al Ittihad.” Best is now working to resolve Al Ittihad’s under review status, and the rating agency said it would “consider information contained in the independent auditors’ report as well as that provided by the company’s management.” It also indicated that it is “likely to take further negative rating actions if it believes that there has been material long-term damage to the company’s business model or credit standing. Upward rating movement is now considered to be highly unlikely.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and the issuer credit rating of {{dq11}} of United Arab Emirates-based Alliance Insurance (PSC); both with stable outlooks. The ratings reflect Alliance’s “strong level of risk-adjusted capitalization and excellent underwriting profitability,” Best explained. As offsetting factors Best noted “the company’s declining business profile and basic level of enterprise risk management. Alliance’s strong level of risk-adjusted capitalization is supported by a relatively low level of net premium leverage, a conservative investment portfolio and the good credit quality of its reinsurance protection. In 2011, Alliance wrote gross and net premiums of AED 280 million ($76 million) and AED 140 million ($38 million), respectively, against a capital base of AED 323 million ($88 million). At the same time, the company’s AED 907 million ($247 million) base of invested assets was largely placed within term deposits at local banks (73 percent). Reinsurance support is provided by reinsurers that maintain an FSR of B++ (Good) or above.” Best also observed that “Alliance’s overall results continue to be resilient, and in 2011 it reported a net result of AED 42 million ($11 million), which relates to a return on equity of 13 percent. In the same year, the company’s results were divided equally between underwriting and investment operations, with it reporting a return on life premiums of 8 percent, a combined ratio for non-life business of 52 percent and a return on invested assets of 5 percent.” Best added that it, “anticipates a good financial performance again in 2012, although with a marginally higher combined ratio compared to 2011.” The report described Alliance as having a “marginal profile in the United Arab Emirates insurance market, and over the past three-four years, a gradual reduction in the volume of gross written premiums for life business has eroded the company’s business position. In 2011, the company declined to renew a significant volume of medical business due to concerns over its level of profitability. This decline has been partially offset by the acceptance of new general business; however, overall gross written premiums have reduced from AED 304 million ($83 million) in 2008 to AED 280 million ($76 million) in 2011. The company faces competition from local insurers that are many times larger and are able to effectively compete for business by offering lower rates.” Best said it considers that a “further erosion of Alliance’s business profile is a significant risk over the medium to long term.” Best also “views Alliance’s level of risk management as basic. The company has weak catastrophe and capital modeling capabilities, and internal data systems appear to be poor. However, efforts are being made by management to gradually improve the company’s level of risk management. A continued deterioration of Alliance’s business profile, a significant reduction in its risk-adjusted capitalization or failure to develop its level of risk management in line with Best’s expectations could result in negative rating actions. An upgrading of the ratings is unlikely at this time.”

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