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FOR IMMEDIATE RELEASE
LONDON - SEPTEMBER 22, 2014 03:29 PM (EDT)
A.M. Best has placed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Gulf Reinsurance Limited (Gulf Re) (United Arab Emirates) under review with negative implications. The action follows an accepted appeal by Gulf Re where new information was provided outlining enhanced strategic initiatives that are expected to be implemented by the company. The ratings will be reviewed again by the end of November 2014.
The under review with negative implications status reflects the weak technical performance of Gulf Re, coupled with the company's ability to finalise stronger alignment with its joint shareholder, Arch Capital Group Ltd (ACGL).
Gulf Re's underwriting performance remains under strain, with technical losses in four out of five full years of operation. The weak performance reflects high expense costs associated with the start-up operation, combined with a higher than expected frequency of large losses in recent years. Furthermore, Gulf Re has experienced two large claims in 2014, forecasting the loss ratio to rise above 100% for the year, which will result in capital and surplus falling below the USD 200 million with which the company was founded. In response to weakening technical performance, efforts are being made to produce a technical profit in 2015 and reduce underwriting volatility within Gulf Re's profile.
Further measures enhancing ACGL's support to Gulf Re are being finalised. These actions include: regulatory approval of board control, an updated stop-loss agreement attaching at a 65% loss ratio, effective from January 2015, Gulf Re's participation in ACGL business through quota-share treaties and a capital injection to return shareholders' equity above USD 200 million.
Gulf Re maintains excellent risk-adjusted capitalisation benefiting from low underwriting leverage and a conservative investment policy. It also reports low financial leverage and sound liquidity.
Positive rating actions are currently unlikely. Negative rating pressure could result if A.M. Best's view of the level of support provided by ACGL to Gulf Re changes or if Gulf Re is unable to demonstrate reduced earnings volatility within the technical account.
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.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure .
This rating announcement has been issued by A.M. Best Europe - Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.