Ratings Recap: Transsib Re, AmerInst

December 31, 2009

A.M. Best Co. has affirmed the financial strength rating of ‘B-‘ (Fair) and the issuer credit rating of “bb-” of Russia’s OJSC Transsiberian Reinsurance Corporation (Transsib Re), both with positive outlooks. The ratings reflect Transsib Re’s “good business position, weak but improving risk-adjusted capitalization and good underwriting performance,” said Best. “The main offsetting factors are its limited financial flexibility and volatility in the investment income results and weak enterprise risk management.” Best also indicated that “Transsib Re’s gross written premiums have been declining over the previous two years due to the softening market conditions, which have led the company to re-evaluate its exposure to certain large risks and the Russian motor quota share business.” However, Best said it “expects the decline to be halted mainly due to the increase in liability business both in Russia and Kazakhstan and further growth emanating from the Turkish market. Underwriting performance has remained good despite the challenging market conditions. The combined ratio is likely to stabilize at around 95 percent, as the claims ratio improves due to the lack of significant losses and the reduction in motor business.” Best noted that “investment performance has been badly impacted by the decline in equity markets and the general economic volatility.” However, the rating agency also said that it “recognizes that a significant part of the decline was due to unrealized capital losses.” Best added that it “believes that investment performance is likely to stabilize in 2010 due to the reduced equity exposure (mainly due to the revaluation of the held assets). Transsib Re benefited from a significant capital injection in 2008, which was partly offset by the significant losses in the same year. Risk-adjusted capitalization is likely to start improving as the company follows a no-dividend policy and retention levels are significantly reduced.” In addition Best said it believes that Transsib Re “has limited capital flexibility as it depends on future retained earnings, although there are no dividend payments planned in the nearest future.” It also believes that the company “needs to strengthen its enterprise risk management by defining its risk appetite and aligning key processes such as investment strategy and evaluation of catastrophe exposures with it.”

A.M. Best Co. has removed from under review and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based AmerInst Insurance Group, Ltd. with stable outlooks. The ratings reflect AmerInst’s “strong capitalization and experienced management team, as well as its niche expertise as a reinsurer of professional liability policies,” Best explained. “Partially offsetting these positive rating factors are the company’s narrow spread of underwriting risk, in addition to the execution risk associated with the implementation of the new business plan.” Best noted that “AmerInst intends to continue under its new business plan to employ a conservative reserving methodology under which it had historically booked to a higher loss ratio than that of its primary carrier.” In addition Best said the Company has met its higher capitalization requirements, which mandate a more conservative level of risk-based capital for a new business plan.” Best will also continue to monitor AmerInst as it implements this business plan. Any material negative deviation from the business plan in terms of management, earnings, capitalization or risk profile could result in negative ratings pressure.”

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