A.M. Best has upgraded the financial strength rating from A- (Excellent) to A (Excellent) and the long-term issuer credit rating from “a-” to “a” of Evergreen Insurance Company Limited (EICL).
The outlook of the Bermuda-based captive’s ratings is stable.
EICL is a pure captive of Evergreen Group and underwrites mainly marine, aviation and property risks related to the group’s operations.
The captive is an integral part of the overall risk management of the group by providing underwriting solutions, operational safety, and loss prevention services to affiliated companies of the group.
Additionally, it is equipped with strong underwriting know-how, as substantiated by its favourable operating performance while maintaining a broad geographic diversification of risks.
The ratings are reflective of EICL’s balance sheet strength, categorised as “strong”, in addition to its strong operating performance, neutral business profile, and appropriate enterprise risk management.
The upgrade in ratings is due to the improvement in the captive’s capital and liquidity position following the full repayment of the loan-back to its parent company in December 2017, coupled with the company’s prudent dividend policy over the short to intermediate term.
EICL’s risk-adjusted capitalisation remained at a robust level, support by low underwriting leverage, prudent reinsurance arrangements with a diversified panel of financially sound reinsurers and a conservative reserving practice.
The ratings agency suggested that despite the captive’s small absolute capital size it will continue to grow its capital and surplus gradually through profit retentions while maintaining strong liquidity over the short to intermediate term.
EICL has demonstrated a history of strong operating results, mainly underpinned by favourable and stable net claims experience as a result of an effective reinsurance strategy.
The captive’s operating expenses have also been lowered by a stream of ceding commission income.
EICL’s conservative investment approach and the continued low-interest-rate environment has led to investment yields being positive yet low.
Offsetting rating factors include the potential increase in reinsurance credit risk associated with reinsurance recoverables related to the company’s sizable ceded aviation risk.
However, the captive regularly monitors the reinsurers’ credit profiles and has strengthened some reinsurance contract clauses recently to reduce the potential credit and liquidity risks.
A.M. Best noted that positive rating actions are not likely over the short to immediate term, but negative actions may occur in the event of material capital or dividend payouts that lead to a substantial decline in EICL’s risk-adjusted capitalisation, or there is a deteriorating trend in the company’s operating performance.