Ratings Recap: Dubai Insurance, Jupiter, Ardelis, TT Club

A.M. Best Europe – Rating Services Limited has revised the outlook to positive from stable and affirmed the issuer credit rating (ICR) of “bbb” and the financial strength rating (FSR) of ‘B++’ (Good) of United Arab Emirates-based Dubai Insurance Company PSC (DIC). The outlook for the FSR is stable. The ICR’s positive outlook “reflects DIC’s strong record of operating results, improved franchise and developing enterprise risk management (ERM),” Best explained. “The ratings of DIC also reflect its very strong risk-adjusted capitalization and a reinsurance program of good quality.” As an offsetting factor Best cited “DIC’s investment concentrations.” Best said: “DIC is likely to maintain a very strong risk-adjusted capitalization over the medium term. The company’s capital base is supported by a low level of premium retention and a strong reinsurance panel. A high concentration of equity securities, particularly within the local banking sector, is of some concern and gives rise to volatility in DIC’s capital position. However, DIC’s capital position is sufficiently strong to absorb this volatility.” 8In addition Best noted that, “despite competitive pressures in the UAE market, DIC has continued its strong growth levels with 21 percent achieved in 2012 — well ahead of the market. DIC’s growth in recent years has improved its franchise and propelled the company to a top 10 position. However, its portfolio is indicative of the market biased towards medical and motor business on a net basis. Furthermore, underwriting performance remains strong with a good record of underwriting profitability. DIC’s combined ratio improved to 78 percent in 2012. DIC’s level of ERM is considered to be improving. DIC has developed a better understanding of its risks and is integrating a capital model into its strategic planning process. There remains a disconnect between underwriting and investment risk as DIC’s investments remain concentrated in UAE banking equities. DIC has taken steps in diversifying its profile through surplus funds being conservatively invested.” In conclusion Best said: “Positive rating pressures can arise through embedding and integration of ERM and the maintenance of underwriting and operational performance. Considerable deterioration in its operating performance or a failure to embed improvements in ERM could add negative pressure to the current ratings.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Guernsey-based Jupiter Insurance Limited, both with stable outlooks. Jupiter is a captive of BP plc, the integrated global oil and gas company. “The ratings reflect Jupiter’s strong underwriting performance as well as its strong risk-adjusted capitalization,” said Best. As partial offsetting factors Best cited “Jupiter’s high level of risk retention, as well as its concentrated investment portfolio, which primarily contains financial instruments linked to its parent, BP.” Best noted that in 2012, “Jupiter achieved a strong performance with a technical profit of $1.924 billion (2011: $1.680 billion). This strong result was attained due to a benign claims experience resulting mostly from a lack of large claims during the year. However, given the nature of the business underwritten technical results can be volatile year on year.” In addition Best pointed out that “Jupiter’s risk-adjusted capitalization remained strong in 2012 supported by good historical profit retentions that built up to a capital base of $7.6 billion at 31 December 2012. Although Jupiter does not purchase any reinsurance protection and risk retention is high at $1.5 billion for any one event (or around 20 percent of total capital and surplus),” Best said it “believes that Jupiter’s capital base could adequately absorb a small number of major claims. Jupiter has over 99 percent of its asset base (2012 $8.210 billion) invested in its parent via two discount notes with durations of three months and 30-days, respectively.” In conclusion Best indicated that “upward rating actions are unlikely at present. Downward rating actions may occur if there were a significant deterioration in Jupiter’s risk-adjusted capitalization and/or a material increase in the retention levels on its fronted program without a commensurate increase in the capital base. Additionally, any deterioration in the credit rating of BP could lead to negative actions being taken on Jupiter’s current ratings.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based Ardellis Insurance Ltd., both with stable outlooks. “The ratings of Ardellis reflect its conservative underwriting leverage, strong level of capitalization and profitable operating results driven by its excellent underwriting performance,” Best said. As partial offsetting factors Best cited “Ardellis’ relatively high retention and limited profile as a single parent captive of Universal Forest Products Inc. (UFP)” Best explained that “Ardellis provides coverage for general liability, auto liability, workers’ compensation, property and medical stop loss. The captive also assumes minor medical stop loss exposure from third parties. Ardellis has maintained very conservative underwriting leverage ratios as surplus has remained strong to support its business volume. The company has posted low loss and loss adjustment expense ratios, reflecting UFP’s effective risk management. The ratings also recognize Ardellis’ balance sheet strength and conservative underwriting leverage measures. In conclusion Best said: “Rating drivers that could lead to a positive outlook and/or an upgrading of Ardellis’ ratings are material and sustained improvement in its underwriting performance and capitalization. Additionally, improved overall risk management and reduced overall net exposure could lead to an upgrading of the ratings. Rating drivers that could lead to a negative outlook and/or a downgrading of the ratings are material deterioration of capital from the company’s claims, investments or a reduced level of capital that does not support its ratings.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit ratings of “a-” of Bermuda-based Through Transport Mutual Insurance Association Limited (TTB) and its subsidiary, the UK-based TT Club Mutual Insurance Limited (TTI). TTB and TTI collectively trade as TT Club. The outlook for both ratings remains stable. The ratings of TTI “reflect the integral part it plays in TT Club’s strategy, as well as the extensive reinsurance protection provided by TTB,” Best explained. “TTB is expected to maintain excellent consolidated risk-adjusted capitalization in 2013. Capitalization is supported by a $30 million subordinated loan (issued in 2006), and the club’s extensive reinsurance protection. The club continues to set reserves with a significant margin established above the external actuary’s best estimate.” Best also noted that in “2013, TTB is expected to produce a combined ratio of roughly 100 percent. Investment income is likely to be modest but positive, reflecting a conservative investment portfolio and the low interest rate environment. As a mutual, the club is not pressured to generate high returns; however, TTB is expected to continue to produce small pre-tax profits in most years, in line with its performance record since 2008.” Best’s report also pointed out that “TT Club has a strong specialist business profile in the international marine transport and logistics insurance market, covering both property and liability risks for port, ship and logistics operators. Its business profile is supported by a superior service standard, which underpins a high policyholder retention rate of roughly 95 percent, and by its active involvement in loss prevention and risk management within the industry.” In conclusion Best said: “Positive rating actions are unlikely in the next 12-24 months. A factor that could lead to negative rating actions is a strong deterioration in performance affecting TTB’s consolidated risk-adjusted capitalization.”

Topics Europe AM Best