Standard & Poor’s Ratings Services affirmed at A- the counterparty credit and insurer financial strength ratings on Dubai-based Salama/Islamic Arab Insurance Co. (Salama/IAIC) and on its reinsurance subgroup (BEST RE (L)(Labuan) and BEST Re Family, Labuan; collectively BEST RE). The outlook is stable.
“The rating affirmation follows a review of BEST RE’s gross and net exposure to the still-rising reported losses from the recent floods in Thailand. Based on information provided by BEST RE and its parent, Salama/IAIC, we believe that BEST RE can absorb current estimates of its ultimate flood-related losses while maintaining a strong financial strength profile,” S&P in a statement said.
“BEST RE benefits from its relative lack of exposure to the large industrial parks in Thailand, where property damage and business interruption claims by international manufacturers are creating significant liabilities for some insurers and reinsurers. BEST RE is also protected by multiple layers of retrocession protection. We currently consider that these are sufficient to limit its net losses on its own account so that they would not significantly exceed $20 million, even under pessimistic scenarios.”
In addition, S&P added, we consider BEST RE to be a “core” member of the wider Salama/IAIC group in Dubai and, as such, S&P expects BEST RE to be fully supported by the strong capital resources of its parent group, where consolidated shareholders’ funds as of end-September 2011 were reported at $449.3 million.
“We expect Salama/IAIC, as ultimate parent, to remain committed to maintaining a strong financial profile at BEST RE.
“The stable outlook reflects our view that based on the information provided to us by the company, BEST RE’s net losses from the Thai floods are unlikely significantly to exceed $20.0 million. We also anticipate that the reinsurance subgroup will fully reserve for these losses in its 2011 year-end accounts. In this way, we believe that in 2012, it will return to the level of technical and overall earnings we have seen in previous years. Salama/IAIC is likely to go ahead with its planned $50 million capital injection at BEST RE, and to remain committed to providing financial support to its core reinsurance operations if the need arises. Although, overall, BEST RE is now likely to make a loss in 2011, we expect it to use its reinforced, post-capital-increase capacity to maintain its strong, geographically diversified operations in Asia, the Middle East and Africa. We anticipate that it will use enhanced risk-management techniques and be selective in markets and lines of business where pricing is considered low. Meanwhile, at the Salama/IAIC group level, we expect consolidated net income to remain positive in 2011, despite the losses incurred at BEST RE, and we expect 2011 year-end group net assets to remain intact at around $450 million,” it added.
“As long as BEST RE’s net exposure to the Thai floods does not exceed our current expectations, the outlook will remain stable. However, if retained flood-related losses for BEST RE’s own account materially exceed $20.0 million, this could result in a negative rating action. We view further potential for ratings uplift in the next two years as remote.”