US Captive – 30 June
Willis has opened a new captive management operation in Malta. It claims this expansion is in response to growing captive insurer and third-party writer opportunities, as Malta establishes itself as a leading financial centre.
The operation is headed up by Mark Bromell, managing director, and reports its first client is Biffa, an integrated waste management business based in the UK.
Biffa, it is claimed, fast-tracked its decision to establish operations in Malta. Following a review that identified both cost savings and the strategic benefit of access to reinsurance markets, Biffa gained board approval for its move in January 2008. Willis presented Biffa with a fully operational captive by its renewal date of April 1.
Malcolm Cutts-Watson, chairman of Willis’ International Captive Practice, said: “We are very pleased to add Malta to our portfolio of EU captive offerings. Malta is a fast-growing domicile and we intend to be part of its success. We are delighted that Biffa has chosen Willis Management (Malta) Limited to manage its captive and be our inaugural client.”
A.M. Best Co. has downgraded the financial strength ratings (FSR) to ‘A+’ (Superior) from ‘A++’ (Superior) and issuer credit ratings (ICR) to ‘aa’ from ‘aa+’ for the domestic life and retirement services subsidiaries of American International Group, Inc. [NYSE: AIG]. Concurrently, A.M. Best downgraded the ICR of AIG to ‘a+’ from ‘aa-’. The outlook for these ratings is negative.
In addition, A.M. Best has downgraded the FSR to ‘A+’ (Superior) from ‘A++’
(Superior) and ICRs to ‘aa’ from ‘aa+’ of Hartford Steam Boiler Group. The outlook for the FSR is stable, and the outlook for the ICRs has been revised to negative from stable.
The ratings and outlooks of AIG’s remaining subsidiaries are unchanged.
The downgrades follow AIG’s announcement that its board of directors has named chairman Robert Willumstad to the position of chief executive officer, replacing Martin Sullivan.
The downgrades are based on A.M. Best’s belief that AIG’s sudden reversal decision to institute a change in management and the future uncertainty of the outcome of such a change highlight a deeper level of systemic challenges facing AIG, surpassing A.M. Best’s expectations. A.M. Best believes that AIG’s need to embark on a company-wide strategic and operational review of all of its businesses is not representative of A.M. Best’s highest rating categories. The uncertainty caused by such a review, coupled with the decision to upgrade management talent may have a negative affect on AIG’s franchises.
A.M. Best Co. has affirmed the financial strength rating of ‘A-’ (Excellent) and the issuer credit rating (ICR) of ‘a-’ of African Reinsurance Corporation. The outlook for both ratings remains stable.
The ratings reflect Africa Re’s solid prospective risk-adjusted capitalisation, robust operating performance and its recognised position in the African reinsurance market.
In A.M. Best’s opinion, Africa Re’s prospective risk-adjusted capitalisation is expected to remain strong, despite a reduction in 2007 attributed to significant premium growth of 26 percent, mainly driven by an exceptional one-off opportunity from a client in South Africa. Going forward, premium growth is anticipated to stabilise at around 7.5 percent in 2008 and 2009, in line with rates expected across the African market. Any significant variations above this target may put the company’s risk-adjusted capitalisation under pressure. Additionally, the company benefits from the financial flexibility of its shareholders, who are committed to provide financial support when required.
A.M. Best forecasts that Africa Re’s operating performance will remain robust, with pre-tax profits of approximately $30 million in each of the next two years (compared to $35 million in 2007). A.M. Best expects that Africa Re’s overall earnings will remain good, though still largely reliant on investment income. Underwriting performance has been good, with technical results of $7.2 million in 2007, and is forecasted to remain resilient with a combined ratio under 100 percent in 2008 and 2009.
Following the publication of the Pitt Review today, please find below initial reactions by Risk Management Solutions (RMS), the world’s leading catastrophe modelling experts and contributors to the report.
If you would like further information or to speak with an RMS spokesperson, please contact Jackie Barber, global PR manager at RMS, on +44 20 7444 7723 or at jackie.barber@rms.com
Commenting on the Pitt Review, Bob Ward, director of public policy at Risk Management Solutions (RMS), said: “The Pitt report contains some powerful recommendations to improve both the measurement and management of flood risk, but to have an impact, they need to be matched by a commitment from the government and others to spend significantly more money.
“Last year’s floods showed that the UK is not prepared to deal with current levels of flood risk, particularly from sudden heavy downpours overwhelming drainage systems. Although it is extremely unlikely that climate change caused last year’s events, sea level rises and potential shifts in storm patterns will increase flood risk, especially in coastal areas.
“One of the most encouraging developments is the recognition that better information is needed on different sources of flood risk. Currently, homeowners have no way of knowing if they are exposed to flash flooding, as this is not included in the Environment Agency’s maps. Our model shows that as many as one in four homes is at risk of flooding from excessive rainfall and rivers overflowing. People have a right to know what level of risk they are exposed to.”
Mr Ward said: “The government should create incentives for people who already have properties in high-risk areas to make their homes more flood resilient, for example, by raising floors in extreme cases or even just sealing front doors.
“Developers must avoid building properties in high flood-risk areas, and where there is a lower risk, new properties should be subject to regulations that enforce flood-resilient construction.”
A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating (ICR) of ‘bbb’ of Tugu Insurance Company Limited (Tugu) (Hong Kong). The outlook for both ratings is stable.
The ratings reflect Tugu's supportive level of risk-adjusted capitalisation, diversified underwriting portfolio and conservative investment strategy.
The company was adequately capitalised with a conservative net premium leverage of 0.27 times in 2007, an average of 0.35 times during 2003-2007. Best's Capital Adequacy Ratio (BCAR), which measures capitalisation on a risk-adjusted basis, reflects that the company has maintained an adequate risk-adjusted surplus level for its insurance and investment risks. Tugu's financial flexibility is further enhanced by a comprehensive reinsurance programme that limits its net exposure to catastrophe losses. A.M. Best anticipates that Tugu will be able to sustain a stable level of risk-adjusted capitalisation in 2008-2009 with its expected business growth and conservative investment strategy.
Tugu has maintained a conservative investment portfolio, providing a stable stream of investment income to generate an overall profit over the years. Approximately 71 percent of its total invested assets was held in cash and short-term bank deposits, while 19 percent was held in fixed income securities at year end 2007. The company has favourable liquidity to support its insurance liabilities. Additionally, most of the investments are denominated in US dollars, minimising the currency exposure.
Tugu underwrites an insurance portfolio with product and geographic diversifications in Hong Kong, Indonesia and other Asian regions. Property damage accounted for 30 percent of total gross premiums written (GPW) for 2007. Other major lines of business include general liability (27 percent), marine (25 percent) and motor (8 percent). The company reduced its reliance upon Indonesia-based Pertamina (its parent company) business and maintained a low retention of higher-risk lines of business over the recent two years.
A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating (ICR) of ‘bbb’ of Elwood Insurance Limited (Hamilton, Bermuda). The outlook for both ratings is stable.
Elwood's ratings recognise its excellent capitalisation level, history of positive operating performance, conservative reserve practices, and effective management of exposures. Over the past five years, return on surplus has averaged 23.1 percent, while surplus levels have increased at a compound annual growth rate of 24.2 percent through the accumulation of net profits.
Partially offsetting these positive rating factors is A.M. Best's concern with the high balance sheet leverage of Elwood's ultimate parent, Celanese Corporation (NYSE: CE), which could negatively impact the operations of its captive. Additional offsetting rating factors are Elwood's exposure to some low-frequency, high-severity hazards in its risk profile, coupled with high gross limits and high net retentions.
Celanese's risk management team takes an enterprise-wide approach to managing its risks and utilising the captive as an integral tool in this process. Elwood has utilised its relationships and those of Celanese to develop a variety of unique and non-correlating accounts, which provide a favourable enhancement to its overall book of business. Nonetheless, Elwood's long-term growth opportunities primarily depend on Celanese's business success.
On June 4, 2008, the City of Columbia's risk manager, Sarah Perry, ARM-P, assumed the role of president of the Public Risk Management Association (PRIMA). Perry has been active in the association for 11 years. She previously served as a director on PRIMA's board and also held key positions within the PRIMA Missouri chapter, including president.
"I became interested in serving as PRIMA's president because I wanted to give back to an organisation from which I have received so much," said Perry. "As president, I hope to offer PRIMA members the same kind of knowledge, support and wonderful networking that has made my success as a public entity risk manager possible."
As president, Perry's responsibilities include leading PRIMA in accomplishment of its mission: "To promote effective risk management in the public interest as an essential component of public administration."
Headquartered in Alexandria, Va., PRIMA is the largest risk management association dedicated solely to the practice of risk management in the public sector, with a membership of more than 2,000 entities in over 1,800 jurisdictions.
Perry has been the risk manager for the city since February 1997.
New York, June 24, 2008: Mr. Sharma, who was speaking in London at the 2008 S&P European Insurance Symposium, said: “We must focus on preserving a consistent approach to overseeing ratings firms—along the lines proposed by the European Union’s ECOFIN, the Financial Stability Forum and IOSCO—which would be in the best interests of international users of ratings.
“We welcome any initiative that works in the interests of the market as a whole, preserves the independence and global consistency of ratings opinions and rating methodologies, and avoids unintended disruption, costs and inefficiencies for investors, issuers and other users of ratings.”
To that end, he added, any regulatory initiative in Europe should therefore focus on the integrity and transparency of the rating process, not seek to determine the content of ratings and methodologies, or become involved in reviewing individual ratings, as that would risk limiting market innovation, call into question the independence of ratings, and potentially create moral hazard as overseers may be perceived to endorse ratings opinions.
Mr. Sharma said much good work has already been done, particularly by the EU’s ECOFIN, by the Financial Stability Forum on behalf of the G8 and by IOSCO representing global securities regulators, in developing a co-ordinated approach globally to restoring confidence in capital markets.
He added that it is critical that this effort continues and that we see a considered and consistent response by authorities around the world to recent events. Investments and capital flows are more global than ever—and this trend will only accelerate—so investors need common measures of assessing risk across the world’s various markets.
“The global market will be best served by a consistent international approach to enhancing transparency, including a common framework for addressing credit ratings. Consistency of approach is vital for cross-border investors and other global credit providers. It supports their ability to assess credit risk on a like-for-like basis across markets, sectors and asset classes. And it helps issuers in local markets raise capital and compete internationally on an even basis with their global peers. To accomplish this will require greater dialogue among all market participants, policymakers and regulators.
New Jersey, USA, June 23, 2008: A.M. Best Co. has revised the rating outlook to positive from stable for Pacific Indemnity Insurance Company (PI) (Guam). At the same time, A.M. Best has affirmed PI’s financial strength rating of ‘B+’ (Good) and issuer credit rating (ICR) of ‘bbb-’.
The ratings reflect PI’s local market expertise in Guam, continued improvement in risk-adjusted capitalisation and profitable operating results. The ratings also recognise PI management’s continued effort in managing its catastrophe exposures and improving its pricing mechanism.
Favourable claim experience along with cautious control in expenses has led to a decline in PI’s combined ratio from 100.3 percent in 2006 to 84.8 percent in 2007. Improvement in underwriting profitability and a stable investment result strengthened the company’s net income to $1.521 million in 2007 from $0.227 million in 2006. With the ongoing distribution support from its affiliate, Cassidy Associated Insurers Inc., PI is expected to consistently maintain its secured market position in the competitive Guam marketplace going forward.
PI’s surplus growth was accelerated in 2007 due to a higher retention of operating earnings. Continued growth in surplus led to a decline in net premium leverage from 1.95 times in 2006 to 1.41 times in 2007. PI’s risk-based capitalisation, as measured by Best’s Capital Adequacy Ratio, also demonstrates an adequate margin to support risk inherent within its insurance portfolio. Prospectively, a steady increase in surplus due to the continuing emergence of operating earnings is expected to further elevate the company’s risk-adjusted capitalisation.
Because of the favourable economic outlook in Guam due to the plans for US military build-up, PI, as a US Treasury-approved surety company for federally funded projects, is expected to increase its presence in the sector of contractors.
Partially offsetting these positive rating factors is PI’s narrow spread of risk due to its geographic concentration in Guam, relatively high expense ratio and moderate level of underwriting capacity.
With a high degree of business concentration on the island of Guam, PI has a narrow spread of geographic risk, being inherently vulnerable to risks associated with economic, regulatory, earthquake and weather-related events in Guam. However, the company has lowered its exposure to mid-sized commercial property risk to mitigate its exposure to catastrophic perils.
Due to the moderate book size, PI has a higher cost structure relative to the industry average, although its continued efforts in controlling operating costs resulted in a consistent improvement in its expense ratio from 49.5 percent in 2005 to 43.3 percent in 2007.
Continued softening in premium rates, especially in the large commercial risk segment, is expected to exert pressure on the profitability of the overall market as a whole. Nonetheless, prevailing market conditions will continue to limit PI’s business growth in the short term due to its intention to ensure the premium adequacy by imposing tighter standards in selecting its risks and allocating costs.
PI’s underwriting performance has been volatile over the past five years, although the company is well protected by its reinsurance arrangements with a panel of high-quality reinsurers. Given its track record and the current insurance book size, A.M. Best remains cautious about the potential volatility of PI's underwriting profitability as the portfolio further develops in the mid term.
US Captive – 16 June
16 June 2008
With the launch of the bank’s Scotia Private Client Group in September 2007, and now with the recent opening of its new offices on the third floor of Scotia Centre, Scotiabank has expanded its trust group and investment team by hiring David Mullen and Carlo Ylagan.
Ylagan brings 12 years of experience in the investment industry to Scotiabank, most recently with a competing investment dealer in Cayman for the last five years. He has helped clients such as individuals, corporations, captive insurers, trusts, and family units with a wide range of investments including equities, fixed income, mutual funds and managed accounts.
According to Bruce John, the Scotia Centre Director, “Both David and Carlo bring considerable experience and depth to our existing team of private bankers, investment advisors and trustees.
Clients can now have access to their own private banker to look after all their banking needs, investment advisors for their investment needs and trustees to look after estate planning and asset protection, all under one Group.”
16 June 2008
Governor Jim Douglas has signed into law a bill making changes
to Vermont's banking and insurance laws, including provisions for streamlining and growing the state's captive insurance industry.
The bill also includes measures designed to protect consumers by enabling Vermont to join a national licensing system for mortgage brokers and non-bank lenders.
"Through a collection of thoughtfully rendered statutory changes, this legislation ties together numerous diverse benefits to both consumers and Vermont's financial services industries, particularly our captive insurance sector," said Gov. Douglas at a signing ceremony at Dwight Asset Management, LLC, in Burlington.
Changes are aimed at streamlining the process for merging captive insurance companies and enhancing the laws for "special purpose financial captives" enacted last year.
A captive insurer is a company that is owned or controlled by its policyholders.
Captive insurance generates millions of dollars in premium taxes to the general fund, according to Banking, Insurance, Securities & Health Care Administration Commissioner Paulette Thabault.
"Through this bill, Vermont continues to polish its 'gold standard' regulatory system to ensure the solvency of captives, while recognizing the special purposes for which they were formed," Thabault said.
The bill also cracks down on unlicensed companies or individuals selling illegal or misleading insurance products to Vermonters; eliminates duplication in the oversight of educational loans, and brings verification of credit union member accounts in line with
national standards.
16 June 2008
Connecticut Governor M Jodi Rell has signed legislation this month to woo captive insurers to the state.
Sen. Joseph J. Crisco, D-Woodbridge, who had sought its passage for several years, said captives could bring the state new revenue and add to its cachet as an insurance capital.
The amount of premium taxes that would be generated for the state depends on the number and size of captives. Taxes, on a sliding scale, would be based on premiums, with the minimum annual payment at $7,500 and maximum of $200,000 per captive under the new law.
Connecticut's law allows captives to be licensed there to serve a single business and its affiliates, or a group of companies in the same industry, or for coverage of an association's members.
The law also paves the way for risk retention groups (RRGs) to be licensed in the state. They are formed under a federal law to insure members who are engaged in similar businesses or activities.
16 June 2008
US technology firm Maple Technologies has launched a joint initiative with Princeton-based Definitive Insurance Management Services to provide services to the captive and alternative risk transfer markets.
Definitive and its affiliated companies provide services that include capital, legal, legislative, regulatory, actuarial and other components to support the captive and alternative risk transfer landscape.
Maple Tech’s Aspire Information System, and soon to be released Aspire Captive Suite (captive manager system), will support integrated data responsibilities across all disciplines for Definitive’s clients, and act as the technological backbone to support all transactional operations.
Nicholas Teetelli, Maple Technologies CEO, said: “The Definitive approach just speaks to the very core disciplines that develop captive and alternative risk transfer opportunities, driven by highly sophisticated technologies; a perfect compliment when considering our long term initiatives and focus toward the captive sector.”
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