Ratings Recap: AmerInst, Trust Re, Flagstone Re Africa, Univé Stormher

September 14, 2012

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., as well as the ICR of “bbb-” of AmerInst’s holding company, AmerInst Insurance Group, Ltd. The ICR for AmerInst Insurance Group, Ltd is strictly based on the holding company’s methodology. The outlook for all of the ratings is stable. The ratings reflect AmerInst and its parent’s “strong capitalization, experienced management team and niche expertise in providing professional liability coverage,” said Best. “The long-term contractual relationship with Crum and Forster Insurance Company as a partner in underwriting, marketing and claims also contributes positively to the ratings.” As partial offsetting Best cited “the organization’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.” Best added that AmerInst has met its “higher capitalization requirements, which mandate a more conservative level of risk-based capital for a new business plan.” Best said it would “continue to monitor AmerInst as it implements this business plan. Any material negative deviation from the business plan in terms of management, earnings, capitalization or risk profile could result in negative rating pressure. Positive rating actions may result from AmerInst executing its business plan over the long term, along with a consistent positive operating performance with minimal volatility. Negative rating actions may result from the organization experiencing larger than expected losses, reduction in capital and/or a failure to meet its business plan over the long term.

A.M. Best Europe – Rating Services Limited 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) Trust Re, both with stable outlooks. The ratings reflect Trust Re’s “adequate risk-adjusted capitalization, resilient operating performance and developing business profile,” Best explained. “Trust Re’s risk-adjusted capitalization has been decreasing in the last two years, negatively impacted by its strong business growth and increased retention level,” which, Best said, it “only considers it as adequate for the current rating level.” However, Best added that it “considers that Trust Re actively manages its capital position and expects the company to take appropriate actions in 2012 and 2013 to restore its risk-adjusted capitalization to a comfortable level whilst ensuring a more efficient utilization of capital to support its changing profile. Trust Re’s management is proactively looking at measures to improve capital efficiency, and the steps taken in 2011 to de-risk the company’s investment portfolio are expected to continue in the next two years. Trust Re published resilient consolidated technical results of $9.5 million in 2011, having been hit by industry major losses. Trust Re’s underwriting results are underpinned by a good loss ratio, with a five-year average below 65 percent despite the peak of 70 percent recorded in 2011, 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 93 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 of around 26 percent and steady returns on investments between 4 percent and 6 percent, benefiting from Trust Underwriting Limited, which is viewed as a strategic investment by the company, allowing exposure to the Lloyd’s market. Furthermore, Trust Re has a good developing business profile as a specialist underwriter of energy and property reinsurance in the Arab, Afro-Asian, Eastern European and Russian markets.” Best added that in its opinion, “Trust Re has improved its enterprise risk management process,” and Best said it “expects further development of the framework to be made.” Best also indicated that it “recognizes the measures taken by Trust Re and views the company’s risk management above par for the region. Upward rating movement is unlikely at this point. Downward rating pressure could occur if Trust Re’s risk-adjusted capitalization were not to improve in the next two years.”

A.M. Best Europe – Rating Services Ltd. has placed under review with developing implications the financial strength rating of ‘A-‘(Excellent) and issuer credit rating of “a-” of Flagstone Reinsurance Africa Limited (FReA), which is based in South Africa, and is a wholly owned subsidiary of Flagstone Reassurance Suisse S.A., which is ultimately owned by Luxembourg-based Flagstone Reinsurance Holdings SA. Best explained that its action “follow the recent announcement that Flagstone Re and Validus Holdings, Ltd. have entered into a definitive merger agreement in which Validus will acquire all of the issued and outstanding shares of Flagstone. The under review status reflects the uncertainty associated with Validus’ future plans regarding Flagstone Re and ultimately FReA.” Best also noted that “FReA’s ratings were removed from under review with negative implications and affirmed on 22 May 2012 with a negative outlook.” Those rating actions reflected Best’s opinion that Flagstone Suisse “remains committed to supporting the obligations of FReA. FReA benefits from a 100 percent quota share arrangement with Flagstone Suisse, which protects all its obligations arising from contracts written since July 2008. The company also receives financial support through a comprehensive parental guarantee. Parental support has been the key factor in the ratings of FReA since its acquisition in 2008. FReA ceased underwriting new business in October 2011, effectively placing the company into run off. The ratings will remain under review pending the completion of the transaction and A.M. Best’s continuing discussions with management relative to the future plans for the Flagstone legal entities.”

A.M. Best Europe – Rating Services Limited has withdrawn the financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of “a-” of Netherlands-based Onderlinge Verzekerings Maatschappij Univé Stormher u.a. (Univé Stormher) following its merger into its affiliate, Onderlinge Verzekerings Maatschappij Univé Her u.a. (Univé Her), on September 5, 2012. Following the merger, Univé Her was subsequently transformed into a limited company (N.V. Univé Her). The FSR of ‘A-‘(Excellent) and ICR of “a-” of Univé Her remain unchanged with a stable outlook. Best said the “merged company will be active retrospectively from 1 January 2012. The restructuring is part of the Univé group’s strategy to streamline its reinsurance arm and increase efficiency across the group.”

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