A.M. Best revises outlook to ‘Stable’ for Argus Group

Posted by on Jun 6, 2013 in Local News & Alerts | 0 comments

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of B++ (Good) and the issuer credit ratings (ICR) of “bbb” of Argus Insurance Company Limited (Argus Insurance) and Bermuda Life Insurance Company Limited (Bermuda Life), both of which are subsidiaries of Argus Group Holdings Limited (Argus Group) (BSE:AGH.BH). Concurrently, A.M. Best has revised the outlook to stable from negative and affirmed the ICR of “bb” for the Argus Group.

Alison Hill, Chief Executive Officer, The Argus Group

A.M. Best also has withdrawn the FSR of B++ (Good) and the ICR of “bbb” of Somers Isles Insurance Company Limited (Somers Isles) due to the amalgamation of Somers Isles into Bermuda Life, a sister company. At the time of the amalgamation, the assets and liabilities of Somers Isles were merged into Bermuda Life. All companies are domiciled in Hamilton, Bermuda.

The stable outlook reflects Argus Group’s return to profitability, the strengthening of its capital and improvement of its asset quality. On a consolidated basis, Argus Group’s underwriting and net income results turned positive in 2012 and continue to remain favorable. The improved results are mainly due to the lack of asset valuation write-downs and a higher level of investment income. For a three-year period through year ending March 31, 2011, although the company reported net losses, underwriting results remained positive. Argus Group has been transitioning its investment portfolio to higher quality lower risk assets. As a result, asset valuation write-downs have been minimal and the stabilization of the investment portfolio has resulted in improved investment income. Additionally, the transition of the investment portfolio also is achieving a better asset/liability matching. The positive net income has allowed the organization to strengthen its capital level through retained earnings.

The earnings results for Argus Group’s insurance operations continue to be positive, and premiums and fee-based income have shown a good level of growth. On a combined basis, Bermuda Life and the former Somers Isles (the organization’s domestic life, annuity, pension and health insurance subsidiary), reported premium growth and improved net income results, which were driven primarily by an improved loss ratio for its health business and improved results from its invested assets. The positive net income for Bermuda Life has strengthened its capital level as well as its amalgamation with Somers Isles. Argus Insurance, the group’s domestic property/casualty writer, continues to record favorable underwriting results and maintains more than adequate risk-adjusted capitalization.

Offsetting factors are the inter-company receivables at the insurance subsidiaries, which while improved, still comprise a significant percentage of overall capital; although, the capital level at Bermuda Life has increased and is adequate, it is still considered modest; holding company liquidity remains low; and efforts to improve the asset quality and asset/liability matching at the insurance subsidiaries are still in progress.

Alison Hill, Chief Executive Officer, the Argus Group, said: “We are pleased that A.M. Best has recognised the success of our two main operating units and holding company by revising the outlook to stable.  We are delighted that A.M. Best has taken into account our return to profitability, the strengthening of the company’s capital and the improvement of our asset quality. Furthermore, we are happy that A.M. Best has recognised our underwriting strength and net income results that turned positive in 2012 and continue to remain favourable.”

Positive rating movement could occur if Argus Group continues to report favorable underwriting and net income results and capital growth; the inter-company receivable balances as a percentage of total capital at the insurance entities are reduced to a minimal level; the transition of the invested assets portfolio to more liquid and higher quality investments that better match the liabilities of each insurance entity is successful; and there is increased liquidity at the holding company.

Key rating factors that could result in negative rating actions include unfavorable earnings from the insurance operations; additional losses due to asset valuation; any further decline in capital levels on a consolidated basis or at the insurance subsidiary level; or growth in intercompany receivable balances.

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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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