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FOR IMMEDIATE RELEASE
LONDON - JANUARY 20, 2017 12:10 PM (EST)
A.M. Best has downgraded the Financial Strength Rating (FSR) to B (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb+” from “bbb-” of Unity Reinsurance Company, Ltd. (Unity Re) (Russia). The Credit Ratings (ratings) have been removed from under review with negative implications. The outlook assigned to the FSR is stable, whilst the outlook assigned to the Long-Term ICR is negative. Concurrently, A.M. Best has withdrawn the ratings as the company has requested to no longer participate in A.M. Best’s interactive rating process.
In August 2016, Unity Re’s ratings were placed under review with negative implications after the announcement of its proposed acquisition by SPAO RESO Garantia (RESO Garantia). The rating actions follow the completion of this transaction in December 2016 and A.M. Best’s assessment of Unity Re’s financial statements and forecasts, as well as the credit profile of its new parent.
The downgrade reflects the continuation in 2016 of Unity Re’s track record of poor technical performance, which combined with a negative investment result is expected to lead to an overall operating loss for 2016. Risk-adjusted capitalisation is expected to remain supportive of the revised rating level, despite an anticipated decline in shareholders’ funds due to retained losses in 2016. However, the company will face challenges maintaining a sufficient buffer within its risk-adjusted capitalisation to cushion against further unexpected losses given its track record of negative technical performance and its exposure to a high level of investment risk stemming from elevated economic and financial system risks in Russia. RESO Garantia’s ownership of the company is considered to be a neutral factor at Unity Re’s revised rating level.
Unity Re has taken actions to modify the terms of its unprofitable treaties and strengthen reserves. However, the impact of these actions is yet to translate into positive underwriting performance. RESO Garantia’s strategic plans for its newly acquired subsidiary include changing the underwriting framework to be in line with RESO Garantia’s risk appetite, exiting Unity Re’s international markets and discontinuing its underperforming accounts. As a result, a contraction in premium volumes is expected in 2017. Whilst the new strategy may improve Unity Re’s earnings profile and reduce its capital requirements due to lower underwriting leverage, the negative outlook considers the risk that the benefits of this strategy may not emerge in the near to medium term.
This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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