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FOR IMMEDIATE RELEASE
OLDWICK - NOVEMBER 04, 2016 03:44 PM (EDT)
A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of Global Indemnity Reinsurance Company, Ltd. (Global Indemnity Re) (Hamilton, Bermuda) and its U.S. subsidiaries. Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb” of Global Indemnity Re’s ultimate parent holding company, Global Indemnity plc (Global Indemnity) (Dublin, Ireland) [NASDAQ: GBLI].
Additionally, A.M. Best has affirmed the Long-Term Issue Credit Rating (Long-Term IR) of “bbb-” on Global Indemnity’s $100 million 7.75% subordinated notes offering due 2045, as well as the indicative Long-Term IRs on its shelf registration of “bbb” on senior unsecured debt, “bbb-” on subordinated unsecured debt and “bb+” on the preferred stock. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the companies.)
The ratings of Global Indemnity Re are based on the consolidated results of the company and its six U.S.-based insurance subsidiaries. The ratings consider the key roles that each of these member companies play, and reflects the organization’s strong capitalization, solid historical underwriting results and its attention on risk selection and risk management in order to maximize stakeholder value.
The ratings also take into consideration initiatives introduced in 2011, the benefits gained from these actions, its increasingly diverse book of business and the advantages of multi-distribution channels and its longstanding agency/broker relationships. These positive ratings factors are offset by competitive pricing pressures in the United States, reinsurance pricing pressures, low investment yields and its recent decline in equity. In addition, the organization has a persistently high expense ratio.
The strong capital position continues to reflect ample support for the company’s prospective premium growth, including the acquisition of American Reliable Insurance Company (American Reliable) in 2015. Future financial flexibility is also available via Global Indemnity Re’s ultimate parent company, Global Indemnity. Through its six member inter-company pool, the organization is afforded access to a substantial amount of commercial and personal lines business in the United States. U.S.-sourced business accounts for the lion’s share of the group’s revenues, as these U.S. insurers cede 50% of the net retained liabilities to Global Indemnity Re and retain the remaining 50% for themselves. These companies, which comprise the vast majority of business retained by Global Indemnity Re, have reported profitable underwriting and operating results over most of the last decade.
Upon its acquisition of American Reliable in 2015, Global Indemnity Re immediately gained immediate access to more than $250 million of specialty personal lines and agricultural business, which nearly doubled its U.S. writings. The acquisition also complemented Global Indemnity Re’s existing business with minimal distributional overlap. Global Indemnity Re’s assimilation of American Reliable furthers its diversification of risk and enhanced underwriting expertise. Some offsetting rating factors related to the American Reliable acquisition include the significant increase in U.S. property exposures taken on by Global Indemnity Re, the additional risk-adjusted capital required to support this business and the additional reinsurance costs necessary to stay within the organization’s stated risk tolerances.
These positive attributes are tempered by competitive (re)insurance and retro pricing pressures, high underwriting expenses and increasing risk in the investment portfolio. Since 2011, management has been implementing an enterprise-wide emphasis on premium adequacy and underwriting profitability. Recent premium contraction through 2012 reflects the orderly discontinuation of unsatisfactory agency relationships and the elimination of certain unprofitable classes of business. A higher-than-average expense ratio is offset by the quality of business sourced though its select distribution partners. While the company continues to prudently reinvest its fixed income portfolio in high quality securities, it is beginning to pursue a modest amount of higher alternative investments.
A.M. Best believes that ongoing execution of management’s recently implemented initiatives should continue to positively impact underwriting and operating results going forward. However, given the recent underwriting losses, it is imperative that the company be able to successfully execute on its business plans.
Positive rating actions could occur if the company can demonstrate sustainable fundamental operating results at levels that exceed that of its peers while maintaining risk-adjusted capital thresholds that are supportive of the ratings. Downward pressure on the ratings or rating outlooks could result if there is material deterioration in the organization’s risk-adjusted capital or a significant decline in underwriting and operating performance, brought on by aggregate catastrophe losses, significant unanticipated loss reserve development, a sudden shift in the group’s business strategy or the loss of a major distribution partner. Any of these events, or a combination of events, could result in negative rating pressure.
The FSR of A (Excellent) and the Long-Term ICRs of “a” have been affirmed for Global Indemnity Reinsurance Company, Ltd. and its following subsidiaries:
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.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.