Best Assigns Singapore’s First Capital ‘A-‘ Ratings

March 1, 2006

A.M. Best Co. announced that it has assigned a financial strength rating of “A-” (Excellent) and an issuer credit of “a-” to the Singapore-based insurer First Capital Insurance Limited, with a stable outlook.

“The rating reflects the company’s sound capitalization, improving underwriting performance and conservative investment strategy,” said Best. “First Capital’s sound capitalization is demonstrated by its strong local capital adequacy ratio and low net underwriting leverage ratio, which stood at 258 percent and 0.4 times, respectively, at year-end 2004. Its outstanding Best’s Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, further demonstrates the substantial cushion that exists.”

Best also noted that “First Capital’s net profit increased to SGD 6.5 million (USD 4.0 million) in fiscal year 2004 from SGD 1.4 million (USD 0.8 million) in fiscal year 2003 due to improving underwriting performance. Despite the competitive insurance market in Singapore, the underwriting margin increased to 19 percent in fiscal year 2004 from 3 percent in fiscal year 2003.

“With successful underwriting controls and claims management, the loss and expense ratios continued to decrease. The combined ratio stood at 78 percent in 2004, which is the lowest in the past five years. A.M. Best expects that First Capital will maintain its current underwriting margin going forward.

“Driven by its conservative investment strategy, the company has a liquid investment portfolio, with 45 percent of its total assets in cash and short-term fixed deposits and approximately 10 percent of equity investments.”

However, the rating agency noted that “offsetting these positive rating factors is the high premium growth, which leads to higher insurance risk, and the highly competitive insurance market (over 40 direct general insurance companies in Singapore).

“With an increase of 63 percent in gross premium written in fiscal year 2004 and a higher business retention ratio, First Capital’s net underwriting leverage increased to 0.4 times in fiscal year 2004 from 0.3 times in fiscal year 2003. Although the premium growth is still considered low at the current rating level, A.M. Best will closely monitor it going forward.”

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