Ratings Recap: Triglav/Triglav Re, Tristar

A.M. Best Europe – Rating Services Ltd. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” to Zavarovalnica Triglav d.d. (Triglav), the operating holding company of the Triglav group, and Pozavarovalnica Triglav Re d.d. Ljubljana (Triglav Re), the wholly owned subsidiary of Triglav. Both companies are domiciled in Slovenia. The outlook assigned to the ratings is stable. The ratings of Triglav and Triglav Re “reflect their supportive risk-adjusted capitalization, improving operating performance and strong competitive position of the Triglav group within the Slovenian market and the West Balkans,” Best said. “The ratings of Triglav Re also consider its strategic importance to Triglav, as the licensed reinsurer of the group. In addition to business derived from the global reinsurance market, Triglav Re supports the reinsurance needs of group members through the provision of a quota share arrangement, thereby providing capacity to sustain the underwriting of smaller group companies. Group business represents 64 percent of Triglav Re’s gross written premiums (GWP) in 2012.” Best also indicated that “Triglav’s risk-adjusted capitalization is strong (on a consolidated and stand-alone basis), underpinned by good internal capital generation. Surplus capital is held and managed at the group level and is considered fungible across Triglav’s subsidiaries. Triglav Re’s risk-adjusted capitalization is also maintained at an adequate level and is expected to be strengthened partly by the full retention of earnings in the near term.” However, Best also noted that “Triglav and Triglav Re are exposed to market volatility surrounding the economic conditions in Slovenia and the possible recapitalization of the domestic banking sector. Although Triglav has taken steps to reduce its investment exposure, the group remains heavily invested in its domestic economy, with fixed income and equity investments accounting for 138 percent of consolidated capital and surplus (including minority interests) at year-end 2012 (2011: 162 percent).” Best also explained that the assigned ratings allow for the outcome of the euro zone investment stress tests, which Best has performed, both at a stand-alone and consolidated level. The result from these stress tests suggests that both companies’ levels of risk-adjusted capitalization are “within the bounds of their respective ratings.” Best added that it “does not consider there to be an immediate and direct impact on the rating fundamentals of Triglav or Triglav Re. Triglav’s operating performance is good and continues to improve due to a change in strategy to focus on the profitability of business written. This strategy follows several years of lackluster performance (prior to 2010) reflecting the impact of weakened rating conditions, intense competition, higher frequency of weather-related losses and the volatile economic and financial environment. Based on preliminary (unaudited) results, Triglav expects to report a pre-tax profit of €90 million [$116.3 million] in 2012 (2011: €58 million [$75 million]), underpinned by a lower combined ratio from the non-life portfolio and an improvement in investment earnings. Triglav Re’s operating results remain highly dependent on the consistent positive performance of business derived from the group.” Best also observed that the “Triglav group of companies benefits from the dominant position of Triglav in its domestic market, with a 36.2 percent market share, and its strong brand recognition across South East Europe. Triglav underwrites a diversified portfolio comprising non-life, life and health risks, which is spread across Slovenia (representing 83 percent of consolidated GWP) and the West Balkans. The group also underwrites a small book of international inwards reinsurance business (representing 4 percent of consolidated GWP) through Triglav Re. Expansionary plans are focused on its direct foreign business.” Best said it “considers that Triglav faces challenges with this strategy, owing to the risks associated with the underdeveloped insurance markets within these countries.” However, Best also said it “believes that growth outside Slovenia is likely to mirror the cautious approach taken in the domestic market to support quality portfolio selection.” In conclusion Best said: “Positive rating actions could occur if Triglav continues to demonstrate stability in its rating fundamentals, particularly in relation to the generation of good underwriting performance and supportive risk-adjusted capitalization, on both a consolidated and stand-alone basis. Negative pressure could arise from a trend in weak underwriting results, particularly in relation to Triglav’s expansion outside of Slovenia, resulting in a decline in risk-adjusted capitalization. Further deterioration in economic conditions in Slovenia could also result in negative rating actions being taken. Positive or negative actions taken on the ratings of Triglav could affect the ratings of Triglav Re.”

A.M. Best Co. has affirmed the financial strength rating of ‘C-‘ (Weak) and issuer credit rating of “cc” of Tristar Insurance Company Limited, which is based in Saint Kitts and Nevis. The outlook for both ratings is stable. Best concurrently withdrew the ratings in response to the company’s request to no longer participate in its interactive rating process. Best said the “rating affirmations reflect Tristar’s narrow business profile, inconsistent overall operating results and limited financial flexibility.” The report also explained that “Tristar is a niche reinsurer primarily focused on surety coverages in Latin America, mainly in Colombia and the Dominican Republic. Overall operating results have been inconsistent and primarily reflect Tristar’s investment performance.” In addition, Best said it “considers the company’s risk management as weak.” However, Best noted that partially offsetting these weaknesses is “Tristar’s adequate risk-adjusted capitalization for its current business profile,” although Best added that it “believes that Tristar’s current ownership structure as a closely held organization limits its financial flexibility.”