HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of First Net Insurance Company (First Net) (Guam). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect First Net’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
First Net’s risk-adjusted capitalisation was at the strongest level in 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). The balance sheet strength assessment is also supported by the company’s zero-dividend policy (with the exception of 2017) and highly conservative investment portfolio. Notwithstanding its small absolute capital base, First Net maintains a comprehensive and conservative reinsurance programme, placed under a high-quality reinsurer panel, to protect its capital against potential catastrophe losses.
First Net has reported a positive, yet relatively small level of operating income in each of the past five years (2015-2019). Its combined ratios mostly outperformed the composite average over the past 10 years, but the small net premium base led to moderate underwriting volatility and high expense ratios. AM Best expects the company to face higher expense pressure given additional tax payment following the expiration of its domestic tax-exemption in April 2019.
First Net is a domestic property and casualty (P/C) insurer on the island of Guam, with a market share of approximately 4% based on 2018 direct premium written (excluding group accident and health). It faces strong competition from many P/C insurers in Guam’s competitive and soft market. Nonetheless, the company has a stable business stream sourced through the strong distribution network of Moylan's Insurance Underwriters, Inc., its affiliated company and a multi-line insurance agency that is active in Guam and nearby jurisdictions.
Negative rating actions could occur if there is sustained and significant deterioration in the company's operating performance due to a series of large losses or an increased level of expense ratio. Negative rating actions could also occur if there is a substantial decline in its risk-adjusted capitalisation as a result of rising underwriting risk or elevated catastrophe exposure.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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