SINGAPORE--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to C+ (Marginal) from C++ (Marginal) and the Long-Term Issuer Credit Rating to “b-” from “b+” of Capital General Insurance Company Limited (CGI) (Papua New Guinea). Additionally, AM Best has placed these Credit Ratings (ratings) under review with negative implications. CGI is a subsidiary of Capital Insurance Group Limited (CIGL), which also is domiciled in Papua New Guinea.
The rating downgrades reflect a deterioration in AM Best’s view of CGI’s balance sheet strength fundamentals following a control failure that is expected to lead to a significant deterioration in risk-adjusted capitalization for the year-end 2018, as measured by Best’s Capital Adequacy Ratio (BCAR). While the company has yet to finalize its year-end 2018 financial statements, AM Best expects reported shareholder’s equity to decline significantly when compared with year-end 2017 and prior expectations for 2018. The deterioration in the company’s capital position follows the identification and correction of historical mis-reporting of reinsurance transactions over a number of years. The control failure is expected to have led to the historical overstatement of the company’s balance sheet position, as well as earnings.
The under review with negative implications status reflects the uncertainty that remains around CGI’s year-end 2018 financial position, pending finalization of audited financial statements, as well as prospective expectations. In order to resolve the under review status, AM Best plans to conduct a full assessment of medium-term balance sheet strength and operating performance fundamentals of CGI and CIGL. In addition, AM Best will consider any actions being taken by the company to bolster prospective risk-adjusted capitalization.
The ratings reflect CGI’s balance sheet strength, which AM Best categorizes as adequate, as well as its strong operating performance, limited business profile and weak enterprise risk management. No rating lift or drag has been applied to CGI’s ratings in respect of its 100% ownership by CIGL.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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