News Column

A.M. Best Upgrades Ratings of Associated Electric & Gas Insurance Services Limited

June 18, 2014



OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Besthas upgraded the financial strength rating to A (Excellent) from A- (Excellent) and the issuer credit rating to “a” from “a-” of Associated Electric & Gas Insurance Services Limited(AEGIS) (Hamilton, Bermuda). The outlook for both ratings has been revised to stable from positive.

The rating upgrades recognize AEGIS’ strong risk-adjusted capitalization, which is appropriate for its current investment and insurance risks, a historically favorable long-term financial performance, as well as an experienced management team and the utilization of comprehensive enterprise risk management processes. Reserving practices are adequate for the hazards insured and losses incurred.

Partially offsetting these positive rating factors are the volatility inherent in AEGIS’ underwriting results, given the high severity risk profile and concentration risk of the energy market it serves.

Due to the long-tail nature of its business and its role as a mutual insurer, AEGIS typically relies on investment earnings to support overall net income where its underwriting results are managed toward the break-even level, reflective of low profitability. AEGIS generally prices its business on a “total return” basis, i.e., the planned use of its investment results to support underwriting pricing. Nonetheless, management continues to focus on improving its operating performance through various risk management strategies, including rate adjustments and refining its underwriting criteria. Given its forecasted business growth, AEGIS' risk-adjusted capitalization is expected to remain strong in the near term.

The ratings reflect AEGIS’ improved risk-adjusted capitalization and operating performance in the past five years after it had encountered a significant loss of surplus in 2008, which was caused by a combination of poor underwriting results and significant investment losses resulting from the financial crisis. The company’s surplus has significantly rebounded from 2008 levels and is currently within an appropriate value-at-risk, i.e., risk tolerance/appetite level.

AEGIS is well positioned at its current rating level. However, the ratings may be subject to negative rating pressures if the company’s risk-adjusted capitalization declines to a level below A.M. Best's expectations, resulting from significant deterioration in operating performance.

A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

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.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.





A.M. Best Company

Alexander Sarfo

Senior Financial Analyst

(908) 439-2200, ext. 5779

alexander.sarfo@ambest.com

or

Steven Chirico, CPA

Assistant Vice President

(908) 439-2200, ext. 5087

steven.chirico@ambest.com

or

Jim Peavy

Assistant Vice President, Public Relations

(908) 439-2200, ext. 5644

james.peavy@ambest.com


Source: A.M. Best Company


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