Ratings Recap: Royal Star, East Africa Re, Bahamas First, New Technology, Connaught

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bahamas-based Royal Star Assurance Limited (RSA), both with stable outlooks. The ratings reflect” RSA’s solid risk-adjusted capitalization, favorable operating results and strong reinsurance program,” said Best. “The company is well established in its various markets with a management team that is experienced in dealing with market cycles. These positive characteristics are supported by RSA’s disciplined approach to underwriting, capital maintenance and risk management.” Best also noted that RSA provides coverage for property, property catastrophe, liability, fidelity, marine and motor lines of business. Although primarily servicing the Bahamas, the company also provides products in the Cayman Islands, Turks and Caicos. However the rating agency indicated that “RSA’s geographic concentration and exposure to hurricane activity,” should be considered as offsetting factors. This concern is mitigated in part by its “strong reinsurance program with prominent reinsurance companies. The program, which protects against multiple events, reduces RSA’s net probable maximum loss to a manageable level, but substantially increases the cost of operations. Additionally, RSA operates in active markets with competition from both indigenous and outside companies seeking market share.”

A.M. Best Co. has assigned a financial strength rating of’ ‘B’ (Fair) and issuer credit rating of “bb+” to Kenya’s East Africa Reinsurance Company Limited (EARe) with stable outlooks. EARe’s ratings reflect its “solid level of risk-adjusted capitalization and stable overall profitability,” Best explained. “Offsetting factors are the company’s vulnerable competitive market position, restricted opportunities for growth and marginal underwriting profitability.” In Best’s opinion, EARe’s current level of risk-adjusted capitalization is solid and benefits from a “relatively good level of capital and surplus. The company’s capital position has been strengthened over the past three years through the full retention of profits.” Although dividend payments are expected in future years, Best said it nonetheless “anticipates that risk-adjusted capitalization will be maintained at a solid level in both 2009 and 2010. Furthermore, EARe’s capital position benefits from adequate outwards reinsurance protection and a conservative investment portfolio. Although EARe has achieved a relatively stable return on equity within the range of 7.4 percent and 10 percent between 2006 and 2008, profits have been reliant on investment income. Small underwriting profits have been achieved in recent years; however, the company’s combined ratio has been above 100 percent in two of the past three years.” Best also noted that in its belief “EARe maintains a relatively weak competitive position within both its domestic Kenyan reinsurance market and overseas. Alongside the legal cessions commanded by several of EARe’s rival reinsurers, price-based competition has historically been a challenge and limited growth opportunities exist.” Best added that the company has a “moderately concentrated business profile, with a little over 40 percent of premium income generated from its top five cedants.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bahamas First General Insurance Company Limited (BFG). The outlook for both ratings is stable. BFG is the primary holding of its parent company, Bahamas First Holdings Limited (BFH). Both companies are domiciled Nassau, Bahamas. Best said its ratings are based on “BFG’s continued solid capitalization, favorable operating performance and established presence in the Bahamian market. These factors are supported by the company’s conservative catastrophe program, underwriting controls, local market expertise and enhanced risk management.” Historically, BFH has contributed capital to BFG to support growth initiatives and to enhance its capital position. Best added that it “expects that BFH will continue to support BFG with additional capital contributions, allowing BFG to maintain the level of risk-adjusted capitalization necessary for its rating level. But BFG’s “geographic concentration and subsequent exposure to hurricane activity” are to be considered as offsetting factors. “However, Best continued, “this concern is mitigated by BFG’s strong reinsurance program with prominent reinsurance companies. The program reduces BFG’s net probable maximum loss to a manageable level, but substantially increases operating costs. Furthermore, BFG faces increased competition from indigenous and outside companies seeking market share.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of Ireland’s New Technology Insurance (NTI). The outlook for both ratings is stable. Concurrently, Best withdrew the ratings at the company’s request and assigned a category “NR-4” to the FSR and “nr” to the ICR. The rating actions reflect the decisions of NTI’s management to withdraw from Best’s interactive rating process “following a change of focus towards more intra-group business,” said the bulletin.

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and the issuer credit rating (ICR) of “bbb-” of Guernsey-based Connaught Insurance Company Limited, the captive insurance company of Thomas Greg and Sons Limited (TG&S), a printing and security specialist. The outlook for the ratings is stable. “The ratings reflect Connaught’s adequate level of risk-adjusted capitalisation in addition to an historically good operating performance,” said Best. “Offsetting factors include a potentially volatile underwriting performance and a restricted business profile.” Best added that it “anticipates that Connaught will maintain an adequate level of risk-adjusted capitalisation throughout 2009 and 2010. This is likely to be supported by a high level of absolute capital and surplus as well as fully retained earnings and a conservative investment strategy. Although Connaught does not itself have any reinsurance protection, its relatively high level of capital and surplus is sufficient to absorb a single large loss.” The rating agency also indicated that Connaught’s book of business has fluctuated significantly in recent years, and although Best considers current levels of capital adequate to absorb large losses, “there is some concern over the captive’s risk tolerance going forward. Over recent years, Connaught’s level of capitalisation has been supported by a consistently good operating performance, as evidenced by loss ratios of 21.9 percent, 0.5 percent and 6.9 percent in 2008, 2007 and 2006, respectively.” Best said it considers that, “although performance is likely to remain good in 2009 and 2010, there is a degree of potential volatility within Connaught’s business due to lack of diversification, exposure to large potential losses and lack of reinsurance coverage. Although Connaught is likely to maintain a restricted business profile and manage only a small number of policies, A.M. Best believes the company is likely to remain an important insurance function for the TG&S group in coming years.”