Ratings Roundup: Wentworth, Gulf Re

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Barbados-based Wentworth Insurance Company Limited, an indirect, wholly owned subsidiary of Fairfax Financial Holdings Limited, and has assigned a stable outlook to both ratings. Best explained that the ratings reflect Wentworth’s “supportive level of risk-adjusted capitalization, historically profitable underwriting and operating performance and the conservative nature of its investment portfolio, which maintains a significant allocation of cash and short-term securities. The ratings also reflect the benefits derived by the company through its relationship to Fairfax.” Ass offsetting factors, Best cited “Wentworth’s modest business profile and the current concentration of property catastrophe exposure within its book of business, which could lead to greater variability in earnings in periods that the company experiences increased weather-related events.” Best also pointed out that Wentworth “is licensed as a Qualifying Insurance Company under the laws and insurance regulations of Barbados and is part of Fairfax’s Group Re business segment. Wentworth’s recent operations have been as a reinsurer for affiliates and non-affiliates.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Gulf Reinsurance Limited, which is based in the United Arab Emirates. Best said the ratings reflect the company’s “prospective excellent risk-adjusted capitalization and selective underwriting. Offsetting factors are the limited business profile and the high expense ratio.” Best explained that the negative outlook reflects its view that “Gulf Re is unlikely to execute the business plan (as revised in 2009) with reference to the projected business growth, which could result in a limited market profile not supportive of the current ratings. Furthermore, Gulf Re’s targets in the mid- to long-term are not clearly defined, which adds uncertainty to the company’s prospective competitive position.” Best added that in its opinion, “Gulf Re’s risk-adjusted capitalization is expected to remain at an excellent level, benefiting from the initial capital injection of $200 million, provided 50 percent each by Gulf Investment Corporation (Kuwait) and Arch Reinsurance Ltd. (Bermuda).” There is also an additional $200 million of capital committed by the shareholders that can be transferred to Gulf Re if necessary. Gulf Re is also committed to fully retain its net profits until the overall capitalization reaches $400 million. Best added that in its opinion, “Gulf Re’s underwriting practice is prudent and selective, which is reflected in the company’s good loss ratio of 62.7 percent in 2009—despite competitive market conditions—although the high amount of expenses pushes the combined ratio above 100 percent. On the other hand, the company’s underwriting approach and the shrinking business opportunities in some of the Middle Eastern reinsurance markets have translated into lower than planned business volume.” The report also indicated that in Best’s opinion, “the resulting reinsurance portfolio of Gulf Re has a high level of concentration, with one cedant contributing 28 percent of business written in 2009.” Following the reduced expectations for business volume, Best also said it believes that, “in the short term, Gulf Re’s underwriting returns are unlikely to offset its expenses, which could prevent the achievement of technical break-even by 2011, as anticipated in the revised business plan.”