Ratings Roundup: International General, Civic Assurance (NZ)

May 17, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Bermuda-based International General Insurance Company Limited (IGI). Best also affirmed the ICR of “bbb-” of International General Insurance Holdings Limited (IGIH), which is based in Dubai. The outlook for all of the ratings is stable. The ratings reflect IGI’s “resilient risk-adjusted capitalization, improved financial performance and developing risk management framework, said Best.”An offsetting factor is IGI’s potential volatility in financial performance in light of its projected plans and changing business profile pertaining to new business lines.” Best added that in its opinion, IGI’s risk-adjusted capitalization “remains resilient, benefiting from favorable market conditions and controlled asset and underwriting risk in 2009. In Best’s view, prospective risk-adjusted capitalization is likely to be determined by the company’s anticipated growth plans and dividend policy. In 2009, IGI demonstrated improved technical performance following the restructuring of its portfolio. In particular Best cited the “withdrawal of Gulf of Mexico risks and realignment of IGI’s marine portfolio (which impacted 2008 results),” indicating that it has “significantly improved IGI’s combined ratio to 98 percent in 2009 from 108 percent in 2008 (nine-month period to December 2008).” Best said it expects IGI “to maintain combined ratios between 95 percent-100 percent over the next two years.” The rating agency will “closely monitor IGI’s performance given the company’s projected plans, targeting growth of up to 20 percent in 2010 and expansion into areas with limited experience.” In Best’s opinion, IGI has “recruited experienced underwriters to manage these risks effectively. Investment income is expected to remain modest between 3 percent-5 percent, given IGI’s conservative investment strategy.” In 2010 Best said it expects IGI’s “geographical focus to remain on the Middle East, the Far East and North Africa, where approximately 45 percent of premiums are derived, with energy and marine being its main lines of business.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of New Zealand Local Government Insurance Corporation Limited (Civic Assurance), both with stable outlooks. The rating affirmations are based on Civic Assurance’s “solid risk-adjusted capitalization and ongoing operating profitability,” said Best. The ratings also acknowledge the company’s “strategic initiative with its administrated trust fund, New Zealand Local Authority Protection Programme Disaster Fund (LAPP).” Best noted that Civic Assurance has been profitable since its inception. However, its operating earnings “decreased slightly to NZD 756,000 [US $530,065] in fiscal year 2009 primarily due to deterioration in the underwriting margin. Notwithstanding the deteriorating underwriting profitability over the past three years, solid investment earnings from rent and fixed interest instruments and fees from administrative activities continue to support Civic Assurance’s overall profitability. Going forward, consistent growth in the company’s administrative business is expected to further diversify its revenue source and partially offset the decrease in the underwriting profit.” Best also indicated that Civic Assurance’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, improved in fiscal year 2009 “predominantly due to its lowered underwriting leverage and reduction in counterparty risk. Since its inception, Civic Assurance’s capitalization has, on an absolute basis, improved through consistent operating profitability and a high level of retained earnings. Nonetheless, its capital and surplus grew at a slower rate of 1.4 percent in fiscal year 2009, compared to its five-year average growth rate of 5.9 percent. These strengths are partially offset by a notable loss in client base, which may lead to volatility in operating performance.” Best also noted that, although Civic Assurance continued to achieve a “profitable operating result in fiscal year 2009, its underwriting margin has been affected by soft market conditions and the loss of clients. As reflected in the company’s underwriting operation, gross premiums written continued to be negatively affected by soft market conditions and intense market competition, which declined on average by 15.8 percent over the past five years. In light of the favorable loss experience in fiscal year 2009, the company’s underwriting profitability further weakened predominantly due to a slowdown in underwriting activity and its rigid operating cost structure.” Best added that nonetheless, the company’s “five-year average combined ratio was 86.8 percent.” Best added that the “suppressed underwriting operation will partially affect the company’s ability to achieve a favorable underwriting margin and corresponding stability in operating performance.”

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