HONG KONG–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” (Good) of Century Insurance Company (Guam) Limited (CIC Guam) (Guam). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CIC Guam’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
CIC Guam’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed at the strongest level supported by its low net underwriting leverage. In addition to the modest size of its capital base, key offsetting balance sheet factors include moderate common stock leverage, which adds a certain level of potential volatility to its capital. Nonetheless, these factors are mitigated partially by the company’s high risk-based capital with no debt obligations and strong liquidity.
CIC Guam’s operating performance has been consistently profitable, mainly supported by its low loss ratio that benefits from the company’s disciplined underwriting and pricing, while its expense ratio and net investment margin lag behind its industry peers. Although the company continued to demonstrate a favorable underwriting margin, a reduced premium base in recent years led to some contraction in its underwriting profits and overall bottom line, which (together with enlarged capital base) consequently, resulted in return on surplus measures that compare less favorably with the composite benchmarks. However, AM Best also notes the strong business growth in 2021, which led to some improvement in the expense ratio from a year before.
CIC Guam is a domestic property/casualty insurer on the island of Guam, and its main lines of business include fire, motor, workers’ compensation, and liability insurance. There is no significant concentration in its product mix; however, the company’s narrow geographic focus in a small and highly competitive market is a major factor that has constrained the business profile assessment. Its distribution concentration risk on one broker was mitigated partially following the acquisition of the main broker partner by CIC Guam’s parent, Tan Holdings Corporation (THC), in October 2019, and as the company tries to diversify its distribution partnerships.
Positive rating actions could occur if CIC Guam can expand its insurance business in a profitable manner, such that it can improve its expense ratio and demonstrate return on surplus measures that outperform its industry peers in a sustainable manner. Negative rating actions could occur if the company’s risk-adjusted capitalization declines significantly or if there is a material shift in its risk appetite. Negative rating actions also could arise if there is significant deterioration in credit profile of its ultimate parent, THC, including its operating profitability, financial leverage and interest coverage levels.
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