A.M. Best Downgrades Rating of Erika Insurance Ltd. - publ -.OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating to B++ (Very Good) from A- (Excellent) of Erika Insurance Ltd. (publ) (Erika) (Sweden). The outlook is stable. The downgrade reflects A.M. Best's reassessment of Erika's role within the EF Group (EF), a provider of language courses worldwide, and the increased risk associated with the high dependence upon reinsurance from an affiliated company, Efekta Insurance Ltd (Efekta). The rating also factors Erika's prospective improvement in earnings following the divestment Divestment The process of selling an asset. Also known as divestiture, it is made for either financial or social goals. Divestment is the opposite of investment.Notes: Generally you'd just say that you are selling an asset. The term divestment is more appropriate however in the following contexts:1) A change in corporate strategy - a firm might say that they are divesting a particular subsidiary to focus on their core business. of third party business. Erika insures only those risks of EF clients, making it dependent upon the highly volatile travel industry, negatively impacting Erika's business flow and risk profile. Since the divestment of third party business in 2003, there has been a significant increase in the credit and liquidity risk Liquidity Risk The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.Notes: Usually reflected in a wide bid-ask spread or large price movements. See also: Country Risk, Liquidity Cushion, Liquidity Risk, Political Risk, Price Risk, Reinvestment Risk, Risk, Risk Averse, Risk/Return Tradeoff, Spread, Systematic Risk, Unsystematic Risk associated with Erika as it cedes 85% of the gross premiums written to Efekta, (EF's reinsurance captive based in Bermuda). Credit and liquidity risk is further exacerbated by a non-callable loan arrangement between Efekta and an EF group subsidiary. Prospectively, A.M. Best expects Erika's operating performance to improve from a lower loss ratio due to the company's better control of claims for group related business and reduced net premium. Historically, the EF business has had a very good record with an average loss ratio of 45% over the last four years. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com. |
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