HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of First Capital Insurance Limited (First Capital) (Singapore). The outlook for both ratings is stable.
The ratings reflect First Capital’s adequate risk-adjusted capitalization and the support it receives from Fairfax Financial Holdings Limited through a no dividend payout policy, and the quarterly review of the company’s operations that ensures the adequacy of the pricing of its risk products and claims reserves.
The ratings also acknowledge First Capital’s ability to consistently manage its favorable underwriting earnings and bottom line while gaining market share in a competitive market environment.
First Capital’s local capital adequacy ratio in fiscal year 2010, which stood at 197%, remains well above the minimum required by Singaporean regulations, despite its declining trend since 2007. The company’s risk-adjusted capitalization has been maintained at an adequate level to support its current ratings as demonstrated by Best’s Capital Adequacy Ratio (BCAR).
First Capital has a good track record of favorable operating results over the past five years, which is attributable to positive underwriting and investment income. Favorable underwriting performance stems from the profit commission income First Capital derives from its reinsurers, which acknowledges the good quality of the company’s portfolio.
Offsetting these positive rating factors is First Capital’s decreasing trend in its risk-adjusted capitalization and the changed mix of its underwriting portfolio, in which the premium contribution of the motor class/taxi fleet third party liability has increased in recent years.
First Capital’s BCAR is in a decreasing trend for the third consecutive year due to the greater growth pace of its asset risk and underwriting risk relative to its capital and surplus increase. The increase in asset risk primarily is driven by investment risk, while greater underwriting risk is partially supported by the excess claims reserves.
Since First Capital began writing taxi fleet third-party liability risk in 2009, the motor line has represented a greater portion of the company’s gross premiums written, contributing 17% in 2010 compared to 5% in 2008. Due to the not so favorable claims experience of this line of business, the overall combined ratio has increased from 72% in 2008 to 84% in 2010. However, in recent years, the underwriting profit has remained steady at around SGD 23 million each year. Going forward, the excess of claims reserves will help the company to stabilize any fluctuation in its loss ratio.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding Universal BCAR”; “Natural Catastrophe Stress Test Methodology”; and “Assessing Country Risk.” Methodologies can be found at www.ambest.com/ratings/methodology.
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