January’s California wildfires have hit insurance companies hard, with AM Best relegating multiple-line insurance organisation Mercury General Corporation and its subsidiaries to a negative credit outlook.
The outlooks have been set despite a bbb (good) long-term issuer credit rating (long-term ICR) for the parent company. An A (excellent) financial strength rating and an a (excellent) long-term issuer credit rating were assigned to Mercury Casualty Group members.
Although the credit ratings demonstrate the strength of the company’s balance sheet, its adequate operating performance, neutral business profile and appropriate enterprise risk management, AM Best highlighted the net losses and reinsurance structure uncertainty resulting from January’s California wildfires. The group lost an estimated US$1.6 to US$2 billion before reinsurance, subrogation, and FAIR Plan assessments and recoupment.
Currently, the firm’s reinsurance programme has a catastrophe reinsurance limit of US$1.29 billion per occurrence, a retention of US$150 million and a reinstatement premium of US$101 million.
Outlooks will remain negative until the impact of the net losses have had on Mercury’s capital, profitability and future reinsurance costs can be determined.
In the latest tranche, two companies saw their credit ratings upgraded. Mexican firm Virginia Surety Seguros de México, part of The Warranty Group underwriting entity Virginia Surety Company, moved from an A- (excellent) to A (excellent) financial strength rating, and from an a- (excellent) to a (excellent) long-term ICR, transitioning from a stable to positive outlook.
The decision was made due to balance sheet reinforcement and strong risk-adjusted capitalisation, AM Best said.
Meanwhile, Berkshire Hathaway-managed CapSpeciality Insurance Group has received an outlook upgrade from stable to positive. A financial strength rating of A (excellent) and long-term ICR of a+ (excellent) have resulted from a consistently maintained capital adequacy ratio and extensive reinsurance partnership with connected business National Indemnity Company, which has reduced the firm’s net premium and reserve leverage ratios.
AM Best stated that it believes underwriting actions by the group have seen improved results and reduced volatility, and expects these trends to continue.
Only one new firm is included in this batch of ratings. Nigerian insurance provider Linkage Assurance has been assigned a C++ (marginal) financial strength rating and a b+ (marginal) long-term ICR, with a stable outlook.
AM Best noted that the firm’s balance sheet was strong, with a marginal operating performance, limited business profile and marginal enterprise risk management. Exposure to illiquid assets, with a single private equity investment making up half the firm’s capital and surplus, along with economic, political and financial system risks in Nigeria offset these positives.
Also upgraded, with the same ratings changes, were Assurant Daños México and Assurant Vida México, subsidiaries of Assurant. However, the firms saw an adjustment from positive to stable ratings outlooks. AM Best noted that operating performance deterioration or aggressive premium growth could jeopardise risk-adjusted capitalisation levels, and that the status of the parent company could influence rating changes.
The majority of firms have had their ratings unchanged. AM Best has maintained the status of Saudi Arabian Mining Company captive reinsurer Ma’aden Re (financial strength B++ (good), long-term ICR bbb+ (good)) and life insurance provider Equitable Holdings and its subsidiaries (financial strength A (excellent) and long-term ICR a+ (excellent)), with stable outlooks.
Similarly maintained and with a stable outlook are insurance providers GEICO, with an A++ (superior) financial strength rating and an aaa (exceptional) long-term ICR, and Panama’s Compañía Internacional de Seguros, with an A (excellent) financial strength rating and an ‘a’ (excellent) long-term ICR. Nepal’s Himalayan Reinsurance has held its B+ (good) financial strength rating and bbb- (good) long-term ICR, with a stable outlook.
Barbados’ Ocean International Reinsurance Company has also had its ratings maintained (financial strength A- (excellent), long-term ICR a- (excellent)), with a positive outlook.
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