2013-03-22 15:57:57 -
A.M. Best Europe – Rating Services Limited has upgraded the issuer credit rating to “bbb+” from “bbb” and affirmed the financial strength rating of B++ (Good) of Solid Forsakringsaktiebolag (Solid) (Sweden). The outlook for both ratings remains stable.
The ratings of Solid reflect its strong risk-adjusted capitalisation, good operating performance and good business profile as a niche extended warranty insurer.
Risk-adjusted capitalisation is expected to increase in 2012, driven by an increase in retained earnings, as well as a fall in underwriting risk. Solid’s claims paying ability continues to be enhanced by the safety reserve, which is expected to account for approximately 80% of total capital and surplus in 2012. In accordance with Swedish insurance regulations, the safety reserve can only be
released to cover insurance losses and is funded from the company’s cumulative retained pre-tax earnings. In July 2012, Nordic Capital, a private equity fund that invests in companies in the Nordic region, acquired a 55% stake in Resurs Holding AB. With this development, A.M. Best anticipates a change in Solid’s executive management. Given Nordic Capital’s funds and resources, the majority shareholder is expected to enhance Solid’s financial flexibility. Additionally, the company continues to reduce its exposure to its affiliate, Resurs Bank AB. Cash placed at Resurs Bank is expected to account for less than 25% of the company’s total investments in 2012 (2011: approximately 35%).
Pre-tax profit is expected to increase in 2012, driven by good investment returns, in particular large unrealised gains on the company’s bond portfolio. In 2012, underwriting income is likely to decrease as a result of rising expenses relating to the newer lines of business. Over the last two years, Solid has established its own in-house claims handling department to accommodate the growth of the motor and property portfolios. Furthermore, acquisition costs remain high as the company continues to source a large portion of its motor portfolio from comparison websites. However, as Solid’s motor portfolio matures and renewals grow, acquisition costs are likely to decrease.
Solid maintains a good niche position within the Swedish extended warranty market. In 2012, net written premium (NWP) is expected to decrease to approximately SEK 1.0 billion (2011: SEK 1.2 billion), following the move from three-year to one-year policies on the extended warranty portfolio. This effect has been partially offset by growth on newer lines of business, and in 2012, the motor portfolio is expected to account for approximately 5% of total NWP, compared to around 2% in the previous year. The property and motor portfolios continue to be protected by an 85% quota share treaty, and forecast growth for these lines of business is expected to continue at a moderate rate.
Positive rating movements could occur if Solid is able to generate a good, stable business profile in its newer lines of business whilst maintaining strong technical results.
Negative rating movements could occur if there were a deterioration in Solid’s underwriting and/or overall results, as well as a deterioration in risk-adjusted capitalisation. In addition, an increased reliance on affiliated companies may have a negative impact on the ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best’s Ratings”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding Universal BCAR”; and “Rating Members of Insurance Groups”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ..
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