Best Affirms Ratings Flagstone Re Africa’s ‘A-‘ Ratings; Outlook Stable

November 20, 2009

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Flagstone Reinsurance Africa Limited, both with stable outlooks.

The ratings reflect the company’s” strong risk-adjusted capitalization as well as the explicit support provided by its parent, Flagstone Reassurance Suisse SA,” Best explained. However Best also indicated that “the execution risks associated with the company’s business plan given the rapid growth, the competitive South African reinsurance market and Flagstone Re Africa’s small business profile in this market,” should be considered as offsetting factors.

Best noted that the “support provided by Flagstone Suisse is fundamental to the ratings assigned to Flagstone Re Africa. The support comes in the form of an extensive reinsurance program, including a 75 percent quota share agreement on all lines of business, along with a contractual agreement guaranteeing all liabilities of the Flagstone Re Africa subsidiary. Additional global resources available from the Flagstone Suisse group include executive and non-executive support, underwriting guidelines, marketing, modeling and operating systems.

In June 2008, Flagstone Re Africa’s capital position was strengthened by a capital injection of approximately RAND 70 million ($8.9 million) from Flagstone Suisse (as part of the acquisition of the 65 percent shareholding).” Best said it believes that the “strong risk-adjusted capital position is likely to be maintained in the next three to five years, partly due to the low retention.”

The rating agency also noted that last September Flagstone Suisse decided to exercise its option to acquire the remaining 35 percent of Flagstone Re Africa—earlier than had been originally anticipated. Best said it “views this move as a positive reinforcement of Flagstone Suisse’s commitment to its Africa subsidiary.”

Best also considers Flagstone Re Africa’s current business profile to be limited due to its relatively small premium volumes and market share. “However, despite the competitive market,” Best added that it “believes the company’s growth targets of 10 percent above inflation in both 2009 and 2010 are achievable. The company’s gross premiums grew by 63 percent to RAND 159 million [$21 million] between 2006 and 2008, with the bulk of the growth in 2008.”

Best expects Flagstone Re Africa’s underwriting performance to “improve in the short to medium term as the growing book of business leads to claims stability, and fixed expenses are spread over a larger base. In 2008, the company posted a breakeven pre-tax profit, as underwriting losses were largely offset by positive investment.

Source: A.M. Best –

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