HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Good) and issuer credit rating (ICR) of “bbb” of Century Insurance Company (Guam) Ltd. (CIC Guam) (Guam). The outlook for the ICR has been revised to positive from stable, while the outlook for the FSR remains stable. A.M. Best has also affirmed the FSR of B+ (Good) and ICR of “bbb-” of Century Insurance Co., Ltd. (CIC Saipan) (Northern Mariana Islands). The outlook for both ratings is stable.
The ratings for CIC Guam reflect its solid risk-adjusted capitalization and continuous profitable underwriting results. The ratings also acknowledge the company’s position as the key insurance arm of Tan Holdings Corporation (THC) and the support it receives from its parent company.
CIC Guam’s capitalization level has substantially improved after the additional capital injection of USD 5 million from THC in June 2010. Its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is solid and supportive of its current ratings. The 100% tax rebate entitlement granted by the Guam Economic Development Authority (GEDA) also helps to strengthen the company’s capital base. Given its modest business projections, CIC Guam’s capitalization is expected to remain adequate in the near term.
CIC Guam has been posting underwriting profits every year since its inception. The positive underwriting income is mainly attributed to its favorable loss ratio with a five-year average of approximately 34%. To protect itself from any sizable loss, the company has been extensively using reinsurance programs to mitigate its inherent catastrophe exposures over the years.
Offsetting factors include CIC Guam’s high expense ratio, significant amount of overdue insurance receivables and its volatile loss reserve development.
As a result of management’s efforts, CIC Guam successfully decreased its expense ratio by approximately 6% in 2011. However, it is still at a relatively high level compared to other domestic players. Also, the large amount of overdue insurance receivables, which is mainly from its exclusive managing general agent, led to a lower level of admitted assets and surplus.
In addition, CIC Guam’s loss reserve development has been volatile since inception. Given its relatively short operating history and unfavorable loss reserve development record in the past two years, A.M. Best will closely monitor CIC Guam’s reserving practice going forward.
CIC Guam’s ratings could be considered for positive rating actions if it is able to lower its expense ratio and continue to demonstrate profitable underwriting results, as well as maintain its solid risk-adjusted capitalization level.
Conversely, negative rating actions could occur if there is a material decline in the company’s risk-adjusted capitalization level and a deterioration of its operating performance.
The ratings for CIC Saipan reflect its adequate risk-based capitalization level as well as its leading position in the local non-life insurance market. The ratings also acknowledge the support the company receives from its parent, THC.
CIC Saipan’s risk-adjusted capitalization, as measured by BCAR, is supportive of its ratings. Given its modest business projections, A.M. Best expects that its capitalization will remain adequate in the near term.
As the first full-fledged insurance company in the Commonwealth of the Northern Mariana Islands (CNMI), CIC Saipan maintains its market leader position in the region. The withdrawal of competitors from the CNMI market in recent years has also strengthened its dominant position in the market.
Offsetting factors include CIC Saipan’s volatile underwriting results, unfavorable loss reserve development and the unfavorable economic environment in Saipan.
CIC Saipan’s top line has been gradually declining over the past five years as a result of the economic downturn in Saipan. The small size of its book and the significant amount of acquisition costs have contributed to CIC Saipan’s volatile underwriting performance in the same period. In the past two years, the company also has encountered unfavorable loss reserve development as evidenced by its sizable amount of reserve deficiencies.
CIC Saipan’s ratings could be considered for positive rating actions if the company is able to demonstrate stable and profitable underwriting results, as well as maintain its adequate risk-adjusted capitalization level.
Conversely, its ratings could be downgraded if there were a material decline in its risk-adjusted capitalization level and a deterioration of its operating performance.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Evaluating Country Risk”; and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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