SINGAPORE--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of C+ (Marginal) and the Long-Term Issuer Credit Rating of “b-” of Capital General Insurance Company Limited (CGI) (Papua New Guinea). The outlook assigned to these Credit Ratings (ratings) is negative.
These rating actions follow the conclusion of AM Best’s full assessment of the rating fundamentals of CGI, which had been placed under review as part of rating actions taken on March 22, 2019.
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. The ratings factor in a neutral impact from the company’s 100% ownership by Capital Insurance Group Limited.
Following the identification of historical misreporting of reinsurance transactions over a number of years, the company restated its 2017 year-end financial position as part of its latest annual report and accounts. This restatement resulted in the company’s shareholders’ equity exhibiting a high degree of volatility over recent years, which has driven variability in CGI’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Prospectively, AM Best expects the company’s small absolute capital base (USD 8.6 million as of year-end 2018), to remain highly sensitive to changes in earnings, reserves or other balance sheet items.
As a result of the aforementioned historical misreporting, CGI’s operating results over a number of years have been overstated. In addition, AM Best expects the company’s underwriting results to be impacted by an increase in large single losses during 2019, which is likely to dampen overall earnings for the year. At present, AM Best views the company’s operating performance, including the impact of recent reporting adjustments, as remaining strong. However, over the near term, if volatility or a deteriorating trend in underwriting and operating performance metrics continues, this assessment likely will be subject to pressure.
AM Best assesses CGI’s business profile as limited reflecting its small scale of operations and niche business portfolio. AM Best also views the company as having a moderate level of product concentration and a high level of geographical concentration, with its entire premium base emanating from Papua New Guinea.
AM Best views CGI’s risk management as underdeveloped, with recent events highlighting governance and control deficiencies. Despite significant management attention on improving the company’s risk management framework and governance, AM Best expects this will take some time to become effective.
The negative outlooks reflect AM Best’s expectation of near-term pressure on operating performance and the potential for continued volatility in risk-adjusted capitalization.
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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