Ratings Roundup: NEWGT Re, Ability Re, RoyalStar (RSA)

January 16, 2013

A.M. Best Asia-Pacific Limited has assigned a financial strength rating of ‘A’- (Excellent) and issuer credit rating of “a-” to Bermuda-based NEWGT Reinsurance Company, Ltd. Best said the ratings reflect NEWGT’s “stable operating profitability, aided by its retrocession coverage in its general account and the implicit support from the parent company, Itochu Corporation.” NEWGT was incorporated in October 2005 as a wholly owned subsidiary of Itochu. It is a class 3 general business reinsurer and is registered under the Segregated Accounts Company Act 2000 in Bermuda. Best described NEWGT’s business as “well diversified due to the broad range of trading business activities conducted by Itochu, which is underwritten by the general account. Under the segregated account, some risks have been underwritten, which are well spread through personal accident and residential fire, with the exception of the catastrophe business, which has been in run off since January 2012.” In addition Best pointed out that NEWGT “reported favorable operating performance in its general account over the past five years, mainly driven by its major line of marine cargo product, which is diversified globally. NEWGT’s retrocession coverage against its major product line helped it to stabilize its underwriting results during the past years. As a single parent captive, NEWGT receives support from Itochu to grow in the captive market in the form of capital injections, as well as support from its integrated risk management system.” As partial offsetting factors Best cited “NEWGT’s continuous expansion into the third party business, volatile operating performance in the segregated account and the uncertain outlook of the global economy. NEWGT will participate in Lloyd’s Syndicates in 2013, which accounts for a significant proportion of its consolidated net premium income in the forecast periods. Although Itochu will support this new business by injecting capital, the increase in the third party business could increase volatility in NEWGT’s operating performance. NEWGT reported a sharp increase in its loss ratio in the segregated account in fiscal year 2010 as it has experienced several large claims from the catastrophe business that has been in run off since 2012. The uncertain economy outlook could impact NEWGT’s operating performance, as the sales of marine cargo are susceptible to trading activities. Downward rating pressure could arise if there is a sharp decline in NEWGT’s risk-adjusted capitalization led by a deterioration in its operating performance.”

A.M. Best Asia-Pacific Limited has assigned a financial strength rating of ‘A’- (Excellent) and issuer credit rating of “a-” to Bermuda-based NEWGT Reinsurance Company, Ltd. Best said the ratings reflect NEWGT’s “stable operating profitability, aided by its retrocession coverage in its general account and the implicit support from the parent company, Itochu Corporation.” NEWGT was incorporated in October 2005 as a wholly owned subsidiary of Itochu. It is a class 3 general business reinsurer and is registered under the Segregated Accounts Company Act 2000 in Bermuda. Best described NEWGT’s business as “well diversified due to the broad range of trading business activities conducted by Itochu, which is underwritten by the general account. Under the segregated account, some risks have been underwritten, which are well spread through personal accident and residential fire, with the exception of the catastrophe business, which has been in run off since January 2012.” In addition Best pointed out that NEWGT “reported favorable operating performance in its general account over the past five years, mainly driven by its major line of marine cargo product, which is diversified globally. NEWGT’s retrocession coverage against its major product line helped it to stabilize its underwriting results during the past years. As a single parent captive, NEWGT receives support from Itochu to grow in the captive market in the form of capital injections, as well as support from its integrated risk management system.” As partial offsetting factors Best cited “NEWGT’s continuous expansion into the third party business, volatile operating performance in the segregated account and the uncertain outlook of the global economy. NEWGT will participate in Lloyd’s Syndicates in 2013, which accounts for a significant proportion of its consolidated net premium income in the forecast periods. Although Itochu will support this new business by injecting capital, the increase in the third party business could increase volatility in NEWGT’s operating performance. NEWGT reported a sharp increase in its loss ratio in the segregated account in fiscal year 2010 as it has experienced several large claims from the catastrophe business that has been in run off since 2012. The uncertain economy outlook could impact NEWGT’s operating performance, as the sales of marine cargo are susceptible to trading activities. Downward rating pressure could arise if there is a sharp decline in NEWGT’s risk-adjusted capitalization led by a deterioration in its operating performance.”

A.M. Best Co. has downgraded the financial strength rating to ‘D’ (Poor) from ‘B’ (Fair) and issuer credit ratings to “c” from “bb” of Ability Reinsurance (Bermuda) Ltd. and Ability Insurance Company (AIC), which is based in Omaha, Nebraska, collectively referred to as Ability Re. Best subsequently withdrew the ratings in response to company management’s request to be removed from A.M. Best’s interactive rating process. Best explained that the downgrade reflects its “perspective on the continued poor financial flexibility of AIC after its significant statutory losses incurred year to date through Sept. 30, 2012. Given the ongoing uncertainty regarding pending litigation and the material decline in the absolute capitalization of AIC,” Best said it “considers its financial flexibility to be very limited, which is reflected in recent rating actions. The weakness in its operating results continues to reflect reserve strengthening on AIC’s long-term care (LTC) insurance block, despite rate increases over the past few years, and ongoing litigation costs.” Best also noted that the “company’s ability to explore strategic solutions may be less viable, particularly in the event of potential reserve increases, which many LTC insurers and reinsurers are facing given low interest rates, lower than priced for lapse rates and higher claims costs.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A’- (Excellent) and issuer credit rating of “a-” of RoyalStar Assurance Limited (RSA), which is based in Nassau, Bahamas. The ratings “reflect RSA’s consistent overall profitability, excellent capitalization and established presence within the Caribbean market,” Best explained. The report also noted that “RSA continues to produce positive operating results, which are a function of the company’s prudent underwriting philosophy and steady stream of investment income.” Best said the “positive outlook reflects RSA’s resilient underwriting results, which consistently places it among the top of its Caribbean peers. RSA writes all of its business in the Caribbean, which exposes it to frequent and severe weather-related events. Although this makes RSA somewhat dependent on reinsurance as part of its overall risk management strategy, its panel of high quality reinsurers mitigates much of this credit risk.” As partial offsetting factors Best noted “RSA’s geographic concentration, aforementioned dependency on reinsurance and exposure to weather-related catastrophes, as well as 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 its 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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