Ratings Recap: PVI Re, L’Union Canadienne, UK War Risks Club

A.M. Best Asia-Pacific Limited has revised the outlook to positive from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Vietnam’s PVI Reinsurance Company (PVI Re). Best said the ratings reflect PVI Re’s “adequate risk-based capitalization, prudent investment strategy, sound liquidity and the support from the major shareholders of PVI Holdings.” Best also noted that in fiscal year 2011, VND 460 billion [$2.208 million] share capital was contributed to PVI Re from PVI Holdings as start-up capital. There is a capital injection plan to gradually increase PVI Re’s charter capital in the coming three years to support its business growth plan. PVI Re may consider engaging in new strategic shareholders; therefore, PVI Holdings’ stake in PVI Re will become lower than 100 percent in the future. Fiscal year 2012 was PVI Re’s first full year of operation. The premium written in fiscal year 2012 was slightly lower than the company’s original business plan; however, the operating profit was largely in line with the business plan.” Best also said: “Over 90 percent of PVI Re’s invested assets are allocated to cash and bank deposits. As the total asset size of PVI Re grows in the coming years, the company will maintain and gradually grow the amount of invested assets allocated to cash and bank deposits, with the remaining expected to be mainly invested in bonds. PVI Re’s overall liquidity is expected to remain strong. The major shareholders of PVI Holdings—Vietnam National Oil & Gas Group (PetroVietnam or PVN), Talanx AG (Talanx) and Oman Investment Fund (OIF)—support PVI Holdings and its subsidiaries in various areas. PVN provides branding awareness and a client network. Talanx and OIF provide support through accessing into international markets and transferring technical knowledge. As offsetting factors Best cited the “impact from Vietnam’s slowing economic growth, the support provided to PVI Holdings’ cash flow and PVI Re’s small absolute capital base relative to peer reinsurers in Southeast Asia. The challenging economic environment in Vietnam could place pressure on PVI Re’s profitability and business growth. On the other hand, a large part of PVI Re’s after-tax profit is expected to be transferred to the parent level in the next few fiscal years, although PVI Re is expected to continue receiving additional contributions of share capital from the parent. Therefore, it is crucial for PVI Re to achieve consistent profitability in order to support the growth of its capital base. In conclusion Best said: “Future upward rating actions could occur if PVI Re continues to strengthen its capitalization according to its business plan, demonstrate the capability to achieve consistently favorable operating performance and strengthen its risk management capabilities. Conversely, negative rating actions could occur if the company’s risk-adjusted capitalization declines to a level below Best’s expectations or if its operating performance deteriorates significantly.”

A.M. Best Co. has removed from under review with developing implications and affirmed the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of Quebec-based L’Union Canadienne Compagnie D’Assurances, both with stable outlooks. Best has also withdrawn the ratings of L’Union as its parent, Roins Financial Services Limited (RFSL), has requested to no longer participate in Best’s interactive rating process. The rating actions follow the recent acquisition of L’Union by RFSL, a Canadian holding company whose ultimate parent is the UK-based RSA Insurance Group plc. Collectively, all of the insurance entities in Canada are referred to as the RSA Group of Canada. Best said the ratings and outlook reflect L’Union’s adequate risk-adjusted capitalization and historically profitable operating performance. The ratings also consider L’Union’s new role within the RSA Group of Canada, the benefit it receives through services provided by RFSL and affiliates and its participation in the corporate reinsurance program.” As partial offsetting factors Best cited L’Union’s “elevated leverage position, geographic concentration in Quebec, thinned post acquisition capital position and strong competitive market pressures in the current soft market.” Best also said that as L’Union “integrates into the RSA Group of Canada and assumes its role within the group, it may be challenged to balance its new responsibilities that could potentially affect its long-term profitability.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to The United Kingdom Mutual War Risks Association Ltd. (UK War Risks or the Club), and has assigned a stable outlook to both ratings is stable. The ratings reflect UK War Risks’ “excellent risk-adjusted capitalization,” which Best said it “believes is sufficiently strong to withstand future earnings volatility, its good operating performance and good business profile in its niche market.” As offsetting factors Best noted “the Club’s small capital base and concentrated membership. In addition, UK War Risks cedes all of its underwriting risk to third-party reinsurers. Although this protects its capital base against adverse loss experience, the Club is exposed to upward movement in reinsurance rates and credit risk. Concern is mitigated by the Club’s excellent loss record, from which its reinsurers benefit, the inclusion of simultaneous payment clauses in reinsurance contracts, as well as the diversity and credit quality of its reinsurers.” Best also said: “UK War Risks has a good, albeit volatile, operating record. Despite making an average annual return on call to members of 11 percent, the Club has reported a post-tax profit in four of the last five years. Over the same period, there has been a modest increase in free reserves, which at year-end February 2013, stood at $31.3 million.” Best added that the Club’s performance “is expected to remain volatile, in spite of the Club’s conservative reinsurance strategy. All underwriting risk is ceded to reinsurers; therefore, technical results reflect retained premium income less operating expenses. As the Club has a concentrated membership base, the non-renewal of a single member’s account may lead to a sharp decline in underwriting earnings, owing to a fall in premium income without an offsetting reduction in operating expenses. In addition, prospective investment earnings are likely to be volatile due to a relatively high allocation to equities and absolute return funds.” Best noted that UK War Risks “has a good specialist business profile insuring ships against war risks that are typically excluded by hull and protection and indemnity insurers. The Club was founded in 1913 as a mutual insurer and began to accept non-U.K.-owned vessels in 2009.
Positive rating actions are unlikely; however, unexpected poor operating results or a material deterioration in the Club’s risk-adjusted capitalization could lead to negative pressure on the ratings.”

Topics Canada