Ratings Roundup: Best Meridian, Seguros Catalana Occidente

February 14, 2014

A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Best Meridian Insurance Company (BMIC), based in Miami, and concurrently Best affirmed the FSR of ‘B++’ (Good) and ICR of “bbb+” of Cayman Islands-based Best Meridian International Insurance Company SPC (BMIIC). The outlook for both of the ratings is stable. Best said the “revised outlook reflects BMIC’s continued favorable risk-adjusted capitalization while maintaining profitable operations and acceptable performance of its mortgage loans. Additionally, the ratings of BMIC continue to reflect its well established marketing presence and cultural knowledge of Latin American countries. The recent increase in its exposure to commercial mortgage loans with a concentration in Florida has stabilized, and the performance remains favorable.” Best added that while it “recognizes BMIC’s strategy to diversify its portfolio holdings primarily away from fixed income investments to improve investment returns, mortgage loans are less liquid, and in a market downturn may underperform.” The report added that BMIIC’s ratings “are based upon its consistent profitability, net premium growth, adequate level of risk-adjusted capitalization and a demonstrated commitment by the parent company, BMI Financial Group, Inc.” As partial offsetting factors Best cited BMIC’s “high level of deferred acquisition costs reflecting new business growth and the limited financial resources of the company’s ultimate parent.” In conclusion Best said: “Positive rating movements for BMIC and BMIIC are unlikely at the present to near term as all key financial metrics are reflected in the current ratings. Rating drivers that may lead to negative rating actions include increased exposure to mortgage loans or deterioration in performance of the companies’ acquired mortgage loans, a decline in operating earnings, disruption in the business model in key international markets or a significant decrease in risk-adjusted capitalization.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Seguros Catalana Occidente, S.A. de Seguros y Reaseguros (SCO) and Bilbao, Compañía Anónima de Seguros y Reaseguros, S.A. (SB), both wholly owned subsidiaries of Grupo Catalana Occidente, S.A. (GCO). All of these companies are domiciled in Spain. The outlook on all of the ratings is stable. “The ratings of SCO and SB reflect their strong risk-adjusted capitalization, stable underwriting performance and established competitive positions in the domestic insurance market,” Best explained. “SCO and SB’s stand-alone risk-adjusted capitalization remains supportive of their ratings due to their strong earnings generation. In addition, both entities benefit from the strong financial flexibility of GCO, where group capital is held and deployed as required across its subsidiaries. GCO’s consolidated risk-adjusted capitalization is maintained at an excellent level.” Best’s report also indicated that “despite the challenging economic conditions in Spain and the subsequent tightening in underwriting margins, SCO and SB’s stand-alone operating performance remains strong, as demonstrated by their five-year average return on capital and surplus of 36 percent and 28 percent, respectively. Prudent underwriting guidelines and limited natural catastrophe exposures, due to the existence of the national government’s scheme covering catastrophes (Consorcio de Compensación de Seguros) have resulted in relatively stable and consistent technical profits for both companies, with a combined ratio of less than 90 percent over the last five years. A partial offsetting factor, however, is the “size of SCO and SB relative to the more dominant players in the market. The companies reported gross written premium of €987 million [$1.35 billion] and €482 million [$670 million], respectively, at year-end 2012. Additionally, the high underwriting and investment exposure to Spain, both at the company and the GCO (consolidated) level, is considered to be a negative factor, due to the fragile economic conditions.” Best also indicated that “there are currently no upwards rating pressures. Negative ratings actions could occur if operating performance or consolidated risk-adjusted capitalization were to deteriorate to a level that does not meet Best’s expectations, at both the GCO (consolidated) and stand-alone entity levels. Additionally, downwards ratings pressure could occur if the perceived ability to reallocate capital across the GCO group of companies were to weaken.”

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