LONDON--(BUSINESS WIRE)--A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of GBG Insurance Limited (Guernsey). GBG Insurance Limited is a wholly owned subsidiary of GBGI Limited, its non-operating holding company and consolidating unit for the GBG group (GBG).
The ratings reflect GBG’s strong balance sheet strength, strong operating performance, limited business profile and marginal enterprise risk management (ERM).
The outlooks have been revised to negative as GBG’s risk-adjusted capitalisation at year-end 2017 was at a lower level than anticipated due to the impact of a one-off impairment allowance equivalent to a quarter of the company’s capital base. While the retention of future earnings is expected to support improvement in GBG’s risk-adjusted capitalisation to the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), A.M. Best is concerned that capital adequacy will remain volatile.
GBG’s balance sheet strength is underpinned by risk-adjusted capitalisation at the very strong level, as measured by BCAR, and the excellent quality of the company’s investment portfolio. However, the company’s capital base is relatively small, which makes its risk-adjusted capitalisation susceptible to fluctuations in its financial results and underwriting exposures. Risk associated with the company’s high reliance on reinsurance is partially offset by the good credit quality of its reinsurance panel.
GBG has a track record of producing strong operating results, as demonstrated by its weighted average combined ratio of 89.2% and a return on equity of 21.0%, reported between financial years 2014 and 2017. In 2017, the company’s expense ratio rose to 43.0% (2016: 33.1%) as a result of an impairment allowance that it reported in relation to the restructure of its business in Angola, in response to adverse economic conditions in the country. In the medium term, GBG is expected to report positive operating results supported by its profitable underwriting activities. Investment results are not material to the company’s earnings in view of its conservative asset allocation.
A.M. Best’s assessment of GBG’s business profile reflects its relatively small size and concentration in the international health insurance market segment. The company maintains good geographical diversification but faces material competition from larger international players. GBG has taken steps to enhance its ERM and corporate governance following its public listing in 2017. Nonetheless, it has yet to demonstrate a comprehensive risk framework that appropriately matches its high operational risk profile, given its wide-spread operations.
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