A.M. Best Downgrades Risk Capital Re To A- From A.OLDWICK, N.J.--(BUSINESS WIRE)--May 12, 1999-- A.M. Best Co. today lowered the A (Excellent) rating of Greenwich, Conn.-based Risk Capital Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Co. to A- because of significant deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. in the company's recent earnings related to underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and investment losses. However, because of the company's strong capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. and liquidity, its ability to gain market share, and the strategic support of its minority owner, Marsh & McLennan, Risk Capital Re continues to maintain an excellent rating. The rating reflects the poor underwriting results on Risk Capital Re's satellite book and one finite property treaty, as well as on business emanating from a certain managing underwriter Managing underwriter The leading firm in an underwriting group, which originates the deal and acts as an agent for the group. managing underwriter See lead underwriter. . Losses totaled nearly $53 million over the two-year period representing approximately 21 points on the combined ratio based on the company's average annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. premiums over this period. In addition, further losses were experienced in the first quarter of 1999 relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc isolated aviation business and a property loss which, combined, totaled an additional $5.4 million. Following the onset of these losses, management was quick to respond by strengthening its underwriting controls and taking steps to mitigate future related losses. However, as a result of Risk Capital Re's integrated business strategy, there does exist ongoing exposure related to its high concentration of insurance-related investments, which leaves it more vulnerable to swings in specific sectors as evidenced by the more than $10 million decline in unrealized capital gains in the first quarter of 1999. Overall, these unsatisfactory results related to both underwriting and investment losses have contributed to a 14% decline in the company's surplus through the first quarter of 1999. Furthermore, due to the company's limited operating history, undeveloped reserves, concentrated client base and comparatively higher investment leverage, there exists further susceptibility susceptibility the state of being susceptible. Refers usually to infectious disease but may be to physical factors such as wetting or to psychological factors such as harassment. to revenues and earnings volatility. Finally, the recent purchase of a competitor by one of its significant shareholders raises uncertainty with regard to ownership continuity and longer-term capital commitment. Yet, despite the downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. , the company continues to sustain an excellent rating because of many positive factors: its strong capitalization, ability to gain market share utilizing its integrated focus, sound liquidity and strategic support of its minority owner, Marsh & McLennan. Risk Capital Re has the capability to offer a unique and highly focused reinsurance strategy of providing reinsurance and other forms of capital, either on a stand-alone basis, or as part of an integrated program to its growing client base. This strategy has allowed the company to grow market share with approximately 40% of its business derived from integrated transactions and strategic relationships. The company also benefits from the quality and experience of management, its strong institutional relationships and its well-diversified business portfolio both in terms of risk classes and territories, with approximately 30% of its business generated from non-U.S. exposures. Risk Capital Re's customized business approach, which targets a smaller number of larger transactions, is less susceptible to price competition, enabling the company to build strong client relationships and lead participations on the majority of its accounts. Risk Capital Re is the 12th-largest domestic broker market reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. , based on surplus. A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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