Best’s News & Research Service - November 03, 2016 12:38 PM (EDT)
A.M. Best Affirms Credit Ratings of Capital General Insurance Company Limited and Capital Life Insurance Company Limited
- November 03, 2016 12:38 PM (EDT)
Singapore //BestWire// - A.M. Best has affirmed the Financial Strength Rating (FSR) of B- (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb-” of Capital General Insurance Company Limited (CGI) (Papua New Guinea). The outlook of these Credit Ratings (ratings) is stable. Concurrently, A.M. Best has affirmed the FSR of B- (Fair) and the Long-Term ICR of “bb-” of Capital Life Insurance Company Limited (CLI) (Papua New Guinea). The outlook of these ratings is positive.
The rating affirmations reflect CGI’s adequate risk-adjusted capitalization, very strong operating performance and good profile in its domestic insurance market.
Benefiting from the strong reputation of its shareholders, CGI has some competitive advantages in its domestic general insurance market. In addition, the company tends to differentiate itself from its competitors in service quality, such as quicker response times and more prompt claim settlements. Nevertheless, A.M. Best remains cautious of CGI’s inherent distribution concentration risk, in which the company is wholly reliant on a very limited number of international brokers to generate the majority of its premiums.
Partially offsetting these positive rating factors is CGI’s large gross catastrophe exposure. This condition arises mainly because the company offers very high insurance limits, which in many cases significantly exceed its capital size. Another offsetting rating factor is CGI’s enterprise risk management (ERM), which A.M. Best considers to be relatively underdeveloped. Although some controls and guidelines are in place, the company lacks a proper foundation for measuring risks and results against tolerances.
Upward rating movement could occur if CGI can maintain favorable technical earnings and more supportive risk-adjusted capitalization on a catastrophe stress-tested basis, while demonstrating significant developments in its ERM. Any significant deterioration in CGI’s operating performance or erosion in its risk-adjusted capitalization could place negative pressure on the ratings.
The rating affirmations of CLI reflect its excellent risk-adjusted capitalization and good operating performance. Over a five-year period, the company’s average return on premium revenue was close to 15%.
The positive outlooks reflect A.M. Best’s expectation that CLI’s good operating performance will continue over the near term.
Partially offsetting these positive rating factors are CLI’s volatile claims experience, inherent distribution concentration risk, and weak ERM. In addition, the company has a significant amount of premiums receivable on its balance sheet, which represented over 30% of its premium revenue. This leaves the company’s profitability highly dependent on premiums due from policyholders.
Upward rating movement could occur if CLI can continue to meet its strategic objectives and planned operating performance, while demonstrating significant developments in its ERM. Any significant deterioration in CLI’s operating performance or erosion in its risk-adjusted capitalization could place negative pressure on the ratings.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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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