Congregational & General Insurance’s outlook revised by Standard & Poor’s to positive from stable. The long term counterparty credit and financial strength ratings have been affirmed at ‘BB+’.
Standard & Poor’s report :
The outlook revision reflects C&GI’s improved credit risk profile as a result of the sale of Integra Insurance Solutions Ltd., its managing general agency (MGA), to Hannover Rueckversicherung AG (Hannover Re). Following the sale, we now measure C&GI’s capital adequacy ratio as extremely strong, although its capital base remains small in absolute terms.
When we reviewed C&GI in February 2011, we expressed concerns regarding the company’s unproven strategy to accelerate its growth through its MGA, with a reliance on third-party capital. We considered the execution risk of this plan to be high; our concerns have turned out to be unfounded. To us, the sale of Integra’s majority stake, well ahead of the planned date, has demonstrated C&GI management’s ability to execute its strategy successfully. We expect the risk profile and capitalization to improve further during 2012, when the company will cease to underwrite household business. This line of business currently contributes about 68% of gross premium income.
In our opinion, the ratings continue to be supported by C&GI’s robust competitive position within its core, but very small, niche commercial property market. At the same time, C&GI’s weak overall competitive position and small capital base in absolute terms constrain the ratings.
The positive outlook reflects our expectation that C&GI will continue to deliver profitable performance throughout 2011 and 2012 financial years and execute its strategy by transitioning into managing and servicing MGAs. We also anticipate that C&GI will maintain at least a strong capital adequacy ratio over the rating horizon and its low financial risk tolerance will continue to demonstrate good and stable operating performance on its church account. We expect its average net combined ratio to be below 95% and its average return on revenue above 10%.
We could upgrade C&GI if we consider that the shareholders’ intend to maintain at least strong capital adequacy over the longer term and a clear longer-term strategy that supports its lowered credit risk profile going forward. The ratings could come under downward pressure if financial risk tolerance were to increase significantly or the company’s capital or operating performance were to materially deteriorate.
Source : Standard & Poor’s
