Best’s News & Research Service - June 12, 2015 12:07 PM (EDT)
A.M. Best Affirms Ratings of Global Indemnity plc and Its Subsidiaries
- June 12, 2015 12:07 PM (EDT)
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a" of Global Indemnity Reinsurance Company, Ltd. (Global Indemnity Re) (Hamilton, Bermuda) and its U.S. subsidiaries. Concurrently, A.M. Best has affirmed the ICR of "bbb" of Global Indemnity Re's ultimate parent holding company, Global Indemnity plc (Global Indemnity) (Dublin, Ireland) [NASDAQ: GBLI].
Additionally, A.M. Best has affirmed the indicative ratings on the shelf registration of "bbb" on senior unsecured debt, "bbb-" on subordinated unsecured debt and "bb+" on the preferred stock of Global Indemnity. The outlook for all ratings is stable. (See below for a detailed listing of the companies.)
The ratings of Global Indemnity Re reflect its strong capitalization and financial flexibility, improving underwriting results and dedication to risk management in order to better contain catastrophe losses.
The strong capital position continues to reflect ample support for the company's prospective premium base and conservative balance sheet, as well as the support and financial flexibility provided by Global Indemnity. The ratings also recognize the historical profitability of Global Indemnity Re's U.S. insurance operations, which operate under one intercompany reinsurance pooling agreement that covers all lines and all accident years. After primary reinsurance, the U.S. operations cede 50% of the net retained liabilities to Global Indemnity Re. Global Indemnity Re itself has strategically canceled or modified several unprofitable reinsurance treaties and generally decreased its writings of unaffiliated third-party reinsurance. It has repositioned itself to the underwriting of conventional treaty reinsurance, primarily catastrophe-oriented placements.
With inclusion of its recent acquisition, American Reliable Insurance Company (ARIC), in its pooling agreement, as of Jan. 1, 2015, A.M. Best expects that Global Indemnity's assimilation of the acquired business into its U.S. insurance operations should support the diversification of its insurance risks and enhance its profitability through the addition of underwriting expertise and claims management in complementary lines with minimal excess overhead. The acquisition of ARIC appears to provide a high quality book of business running at favorable underwriting numbers. Further integration over the next one to two years should yield substantial synergistic improvement in the overall operating expense aspects of the business.
These positive attributes are tempered by the group's potential exposure to future weather-related events, high underwriting expenses and increasing risk in the investment portfolio. Management has been aggressively evaluating its property catastrophe exposure for better underwriting and management, as well as for enhancing its catastrophe coverage efficiently. It has also been implementing an enterprise-wide emphasis on premium adequacy and underwriting profitability. Thus, recent premium declines had reflected the orderly discontinuation of relationships with agents and brokers that had been producing unsatisfactory results and exiting certain unprofitable classes of business. Expenses seem well-controlled yet reflect a higher-than-average expense ratio. Integration of ARIC's operations, which historically reflected high expense ratios, provide an opportunity for efficiency since ARIC's expenses were relatively high in payment for services provided by its former corporate owner. The company also is prudently reinvesting its fixed income portfolio but is beginning to pursue a modest amount of risk-adjusted yield in certain alternative investments after reducing equity exposure in 2014.
A positive rating action on the company in the near term is unlikely until sustainable underwriting profitability returns. Factors that may lead to a positive rating action in the medium term include a sustained improvement in operating performance and the company's ability to meet or beat projections. Factors that may lead to a negative rating action include continued weakening of operating results, a decline in risk-adjusted capitalization or a decline in reserve adequacy.
The FSR of A (Excellent) and the ICRs of "a" have been affirmed for Global Indemnity Reinsurance Company, Ltd. and its following subsidiaries:
- American Reliable Insurance Company
- Diamond State Insurance Company
- Penn-America Insurance Company
- Penn-Patriot Insurance Company
- Penn-Star Insurance Company
- United National Insurance Company
- United National Specialty Insurance Company
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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology .
Key insurance criteria reports utilized:
- Analyzing Insurance Holding Company Liquidity
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Understanding BCAR for Property/Casualty Insurers
- Understanding Universal BCAR
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.
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