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A.M. Best affirms credit ratings of CIC (Guam) Ltd
Removes from under review with developing implications
HONG KONG—A.M. Best has removed from under review with developing implications and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of Century Insurance Company (Guam) Limited (CIC Guam) (Guam). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect CIC Guam’s balance sheet strength, which A.M. Best categorizes as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
CIC Guam’s capitalization level has consistently improved due to the company’s favorable underwriting and investment performance in recent years. The company’s consistent positive retained earnings are a reflection of its emphasis on prudent underwriting and efforts to improve its claims management, along with its diversified investment strategy and sound reinsurance program.
The exclusive managing general agent (MGA) agreement that CIC Guam had relied on heavily for business and distribution support since the agreement began in 2004 was terminated in October 2017. Subsequently, the company has entered into multiple brokers’ agreements, of which one is with its former MGA and another with a newly established and affiliated broker in Guam. The company expects its former MGA to lead the premium contribution of its book of business in the future. In 2017 and in the first quarter of 2018, more than 90 percent of the company’s premium income was sourced from its former MGA. Following the termination, CIC Guam also brought the underwriting function in-house and tightened its underwriting standards.
Offsetting rating factors include the competitive landscape in Guam, the company’s heavy reliance on its former MGA for business generation and distribution and execution risk associated with its new distribution and underwriting strategy. In addition, CIC Guam’s relatively high common stock leverage adds volatility to its capital base through fluctuations in unrealized capital gains and losses. A.M. Best expects the company to continue to address and improve upon past issues of overdue premium collection and reserve adequacy.
While positive rating actions are unlikely in the near term, negative rating actions could occur if there is a substantial decline in the company’s risk-adjusted capitalization due to an adverse deviation in its underwriting or investment results from its business plan. A significant deterioration in its business profile or operating performance due to the change in its distribution strategy also could add negative rating pressure.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication. (PR)
