CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JANUARY 29, 2002 12:00 AM (EST)
A.M. Best Co. has affirmed the A- (Excellent) financial strength rating of Sweden-based, Erika Insurance Ltd. At the same time, it has assigned a negative outlook.
The rating reflects Erika's excellent operating performance, excellent capitalisation and good business position in the Scandinavian travel insurance market. Offsetting these factors is Erika's increased involvement in non-group business (30% in 2000), exposing the company to adverse business decisions.
The negative outlook reflects falling travel volume following the WTC attack in September 2001, which affects Erika's expansion plans and the company's diminishing control over the claims handling process as the proportion of third party business increases.
Erika is part the EF group, the largest language tour operator worldwide. Together with its sister company, Efekta Insurance Ltd., Bermuda, Erika Insurance provides travel insurance solutions to its clients.
Excellent operating performance - Erika Insurance has achieved excellent loss ratios averaging 39.8% from 1996-2000. Expense levels - initially relatively high - have improved significantly, averaging 44.4% over the last five years.
Excellent capitalisation - At a consolidated level (Erika Insurance and Efekta Insurance), capitalisation is excellent according to A.M.Best's risk-based capital model, although the absolute amount of equity - including contingency provisions - is relatively small. Erika benefits from a favourable fiscal environment, which allows building up tax-free equity type contingency reserves. In addition, profits can be retained tax-free in Bermuda.
Good business position - Gross premiums increased to SKR 213.6m (USD 22.7m) in 2000 from SKR 80.2 (USD 8.5). Premium income is expected to reach SKR 243.5 in 2001-2002, with about 40% coming from non-group tour operators and independent business travellers. However, following the WTC attack, travel volumes are expected to decrease significantly, delaying the company's expansion plans.
Reliance on large tour operators - Erika is making progress expanding its third party business. However, the company's small size, compared to other specialist travel insurers, could potentially make it challenging both in operational terms and maintaining historical profit levels.
The negative outlook reflects the difficult environment for tour operators, especially in the United States, which ultimately affects Erika's premium volume. In addition, A.M. Best is concerned that Erika's expansion into the third party business may diminish the company's ability to control the claims handling process with deteriorating results as a consequence.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.