Ratings Recap: Marble Re, Victoria

February 26, 2013

A.M. Best Asia-Pacific Limited has assigned a financial strength rating of ‘A’- (Excellent) and issuer credit rating of “a-” to Marble Reinsurance Corporation, based in the Federated State of Micronesia, both with stable outlooks. The ratings reflect Marble Re’s “strong risk-adjusted capitalization, stable operating profitability, strong retrocession coverage and the support from the parent company, Marubeni Corporation,” Best said. “As a single parent captive of Marubeni Corporation, Marble Re’s risk–adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remains strong to support the assigned ratings. Marble Re’s absolute capitalization is expected to further increase primarily due to strong profitability and capital injection from the parent company of Marubeni in early 2013. Marble Re reported a combined ratio of an average of 52 percent in the past five years, with a range from 49.7 percent to 57.4 percent as it focuses on marine cargo line risk. The new product portfolio generated from Marubeni Corporation’s group of companies, which reported a favorable track record in underwriting results, could support the operating profitability in the future. Marble Re maintains a conservative underwriting guidance with a limited retention and retrocession coverage of an aggregate stop loss cover against marine cargo line.” As partial offsetting factors Best cited “an implementation risk in Marble Re’s expansion plan as well as an uncertain outlook of the economy conditions. Although Marbubeni Corporation has a long history in operating captive businesses, the expansion of product lines would cause risk in its implementation,” Best explained. “As Marble Re’s major product line is marine cargo, of which sales are susceptible to trading activities, weakening trading activities would lead to a sharp drop in premium income, and consequently, could impair its operating performance. While upward movement on Marble Re’s ratings is unlikely, downward pressure could arise if there is a sharp decline in its risk-adjusted capitalization.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘B+’ (Good) and an issuer credit rating of “bbb-” to Kazakhstan-based Victoria Insurance Company JSC, and has assigned a stable outlook to both ratings. Best said the “ratings reflect Victoria’s excellent level of risk-adjusted capitalization, strong historical underwriting results and reasonable prospective business plans.” As an offsetting factor Best noted “Victoria’s changing product portfolio as it develops other lines of business following a recent change to (re)insurance regulations in Kazakhstan.” Best also said “Victoria’s level of risk-adjusted capitalization is supported by a relatively large capital base and low premium to capital ratio. Based on unaudited preliminary results from the local regulator in 2012, Victoria’s capital and surplus amounted to KZT 46.7 billion (approximately $310 million), which represented roughly one-fifth of the total capital and surplus of the entire domestic insurance market. In 2012, net written premium is expected to be around KZT 2.0 billion (approximately $13 million), compared to KZT 3.9 billion [$25.9 million] in the previous year.” Best explained that the “fall in premium income was largely driven by a change in reinsurance regulation, and as a result, Victoria was unable to continue fronting several large risks. Underwriting performance has been excellent in each of the past five years. Despite a large dividend payment of KZT 6.2 billion [$41.2 million] during the year, preliminary results in 2012 look strong.” However, Best also indicated that “previous results are not indicative of future performance, given the company’s changing business profile. Until 2010, the company derived the majority of its business from a group affiliate, whilst from 2010 almost all business was related to third parties with a low level of risk retention. Partially as a result of new regulations that impose a minimal level of retention and enforce minimum standards on the credit quality of foreign reinsurers, Victoria’s business profile will continue to evolve. As such, the company plans to grow its reinsurance portfolio as well as retail lines of business largely through banking relationships.” Best said: “Positive rating actions could occur if Victoria is able to generate a good, stable business profile whilst maintaining strong technical results, and demonstrates that risk management adequately matches it growing portfolio. Negative rating actions could occur if Victoria is unable to adequately manage its accumulation and catastrophe risks as it develops its business. Whilst there is some room for deterioration in underwriting performance and risk-adjusted capitalization before negative rating pressure could occur, any significant and unexpected weakening could result in a negative rating action.”

Was this article valuable?

Here are more articles you may enjoy.