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Excellent rating obtained by non-profit’s captive
AM Best has assigned a financial strength rating of A- (Excellent) and a long-term issuer credit rating of “a-” (Excellent) to Bermudian-based Research Insurance Company Limited.
The outlook assigned to these credit ratings is stable.
RICL is a captive insurance company wholly owned by Battelle Memorial Institute, an Ohio-based non-profit corporation and provider of technology-based research, management, commercialisation and educational services to government and industry.
The ratings reflect RICL’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile, appropriate enterprise risk management and one notch of rating enhancement that it receives from its ultimate parent, BMI in Columbus, Ohio.
RICL’s level of risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, is assessed at the strongest level, where AM Best expects it to remain in future years.
The balance sheet strength assessment also considers the company’s low investment risk profile and organic surplus growth achieved over several years. These factors are offset somewhat by the high loss limit (relative to its surplus) that the captive offers the parent.
Overall, RICL’s operating performance has been profitable as demonstrated by its five-year average combined ratio and net return on revenue measures that exceed AM Best’s commercial composite.
The ratings agency said consistent operating profits are attributable to favourable underwriting results and, to a greater extent, solid investment income in each of the past five years which together have enabled the captive to grow surplus.
Further, RICL’s operating performance reflects the inherent benefits of being a captive insurer as it has minimal acquisition costs and administrative expenses, driving its very favourable expense ratio.
RICL’s business profile is limited, as it writes, mainly on a claims-made basis, products and errors and omissions, umbrella policies for general and employers’ liability, professional liability, property flood deductible buy-down and environmental impairment coverage for its parent and affiliated organisations.
AM Best said RICL is an integral component of BMI’s ERM programme as it provides specific insurance coverages to BMI, its subsidiaries and affiliates more efficiently than the traditional market. This strategic role and history in the BMI enterprise justify lift from the parent in the ratings as it indicates a committed level of implicit and explicit support as well as other inherent benefits the captive receives from BMI.
The stable outlooks reflect AM Best's expectations that RICL’s future operating performance will remain stable and strong, and that the earnings profile will support the company in continuing to provide underwriting coverage consistent with its capital and surplus position.
It also reflects AM Best’s expectation that BMI’s support for the captive will not change.
Negative rating action could occur if underwriting performance declines and demonstrates volatility, negatively impacting earnings and capitalisation or if there is a material shift in risk profile that could undermine the stability and profitability of the company. Negative rating action could also occur if AM Best’s perception of BMI’s ability or willingness to support RICL changes.
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Rating Action Commentary
Fitch Assigns Ratings to Intact's Acquired RSA Subsidiaries
Tue 27 Jul, 2021 - 6:03 PM ET
Fitch Ratings - Chicago - 27 Jul 2021: Fitch has assigned 'AA-' (Very Strong) Insurer Financial Strength (IFS) ratings to previously unrated subsidiaries of RSA Insurance Group Plc (RSA Group), which Intact Financial Corporation (Intact, or IFC) acquired in June 2021. In applying the group rating criteria, Fitch determined RSA Group's Canadian subsidiaries to be core to Intact and aligned the ratings to the group's IFS rating of 'AA-'; the UK and European subsidiaries were maintained at 'Very Important' and received a two-notch uplift to their standalone credit profile, resulting in a 'AA-' IFS rating.
Key Rating Drivers
The ratings assigned to RSA Group's Canadian subsidiaries reflect their strategic importance as core units of Intact under Fitch's group rating methodology. In particular, the Canadian business is key and integral to the synergies of the group as a whole, and was the primary driver for the acquisition.
The ratings assigned to RSA Group's UK and European subsidiaries reflect their strategic importance as 'Very Important' to Intact, resulting in a two-notch up-lift from the standalone credit profile of RSA Group's operating companies, due to Intact's willingness and ability to provide support. Intact has demonstrated its willingness to provide support to RSA Group by reallocating capital at closing, including the refinancing of upcoming debt maturities. Intact has indicated its intention to support RSA Group and its willingness to inject further capital if needed.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
--Successful integration of acquired business into IFC with minimal deviations from assumptions could lead to an upgrade. Integration efforts would be measured 36 months after close of the transaction.
--Sustained fixed-charge coverage ratio of approximately 11.5x or higher.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
--Failure to successfully integrate acquired businesses into IFC could lead to a downgrade.
--Sustained increase in financial leverage of 28% or higher.
--Sustained reduction in fixed-charge coverage below 5.0x.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
- Insurance Rating Criteria - Effective from 15 April 2021 to 26 November 2021 (pub. 15 Apr 2021) (including rating assumption sensitivity)
ADDITIONAL DISCLOSURES
- Dodd-Frank Rating Information Disclosure Form
- Solicitation Status
- Endorsement Policy
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