AMSTERDAM--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of Tryggingamiðstöðin hf. (TM) (Iceland). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect TM’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The company’s balance sheet strength is underpinned by risk-adjusted capitalisation that AM Best expects to be maintained at or above the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR), and supported by good internal capital generation and a robust capital management strategy. However, given the company’s elevated investment risk exposure due to a relatively material allocation of higher risk assets, as well as TM’s asset concentration in the Icelandic financial market, prospective risk-adjusted capitalization is susceptible to volatility. The balance sheet strength assessment also factors in the company’s good financial flexibility and a robust reinsurance programme. A partially offsetting rating factor is the relatively high dependence on reinsurance for a number of individual large risks.
The company’s historical good level of earnings, as demonstrated by a five-year weighted average return on equity of 17% (2014-2018), have been supported predominantly by strong investment income. AM Best expects prospective operating performance to remain adequate, albeit subject to volatility as a result of the company’s exposure to the financial system risk of Iceland. In 2018, TM reported a weaker operating result relative to its performance record over the past five years (2014-2018). The company reported a net investment return (including gains) of 5.5% in 2018 compared with a five-year weighted average of 10.8%. The lower investment return was largely driven by a weak performance of TM’s relatively large listed equity holdings. The company also reported a weak technical result with a combined ratio (as calculated by AM Best) of 105.9% in 2018 compared with the five-year weighted average of 101.9%; this was a result of a number of large claims in TM’s property and marine books.
TM benefits from a good market position and expertise in the Icelandic commercial and public insurance sector. However, the company’s business profile assessment is somewhat constrained by its geographic concentration to Iceland’s relatively small insurance market.
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