A.M. Best Lowers Arig Reinsurance Rating.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--July 28, 2000 A.M. Best Co. has lowered its rating on Arig 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. Company B.S.C. (c), (Arig Re) Manama, Bahrain, to A- (Excellent) from A (Excellent). The action reflects the company's disappointing 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. loss and poor operating performance in 1999. Offsetting these factors are the strength of the company's balance sheet, its leading position in the Arab and Afro-Asian insurance markets and its conservative investment strategy. Depressed trading conditions, downward pressure on premium rates and high frequency and severity of natural catastrophes made 1999 a disappointing year for Arig Re. The 1999 accounting year was particularly affected by poor marine results reported by the company's U.K. subsidiary, Arig Insurance Co. Ltd. (Arig UK) and U.S. $24.4 million of exceptional costs incurred as a result of the decision to place Arig U.K. into run-off. These factors contributed to an unsatisfactory combined ratio of 213.1%, compared with 111.8% in 1998. Excluding Arig U.K., the company's combined ratio for 1999 was 163.5%, and if pipe-line premium adjustments of U.S. $25.5 million for 1998 and prior underwriting years are removed, the combined ratio further improves to 130.2%, which more accurately reflects the underwriting performance of the company's continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the . The operating ratio Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: for 1999 was a disappointing 187.9% and is indicative of the company's poor underwriting performance. The company's 1999 pre-tax operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of U.S. $100.7 million represents a loss on net earned premium Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. of 78.2%, compared with a profit of 6.0% in 1998. Although the company recorded a substantial operating loss for 1999--which produced a 27% decline in adjusted capital and surplus, to U.S. $226.7 million--capital and surplus remains sufficient to support its business. Underwriting leverage (net written premium to adjusted capital and surplus) was a conservative 0.5, which compares favorably to 1998 and to equivalent measures for the company's peers. As the largest publicly owned Publicly owned can refer to:
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. operating world-wide from the Arab region, Arig Re benefits from its proximity and cultural affinity with its growing core client base. The company has developed long-term relationships with its clients in the Arab region over many years and, consequently, client retention is high. These competitive advantages are likely to result in an improvement in the company's operating performance over the medium-term. As few countries in the Arab market are susceptible to catastrophic perils, growth in this segment of its account is also likely to reduce overall volatility in the company's underwriting and operating results. Most of Arig Re's investments are managed by the parent company, Arab Insurance Group, as part of the group's arrangement for centralized cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. management of its invested assets. The investment portfolio is conservatively structured, with a high degree of liquidity. It is dominated by fixed-income securities Fixed-income securities Investments that have specific interest rates, such as bonds. that account for 82.7% of total invested assets. Equities account for only 7.2%. This rating action followed an analysis of the country-risk factors associated with the group's domicile domicile (dŏm`əsīl'), one's legal residence. This may or may not be the place where one actually resides at any one time. The domicile is the permanent home to which one is presumed to have the intention of returning whenever the purpose in Bahrain. Because most of the group's assets and customers are based outside the country--and because integrated administration and technology functions ensure that management can operate effectively from any of the group's international branch locations--A.M. Best believes these risk factors do not have a material impact on the rating. In a separate rating action, A.M. Best affirmed the B+ (Very Good) rating of Arig UK. The action is largely based on a review of Arig U.K.'s technical reserves and reinsurance program, which A.M. Best believes will support an orderly run-off of the subsidiary's liabilities. 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 www.ambest.com. |
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