Altfin Insurance Company Limited: Claims paying ability rating downgrade
The claims paying ability rating accorded to Altfin Insurance Company Limited (“Altfin”) has been downgraded to BB-(ZW) (double B minus), from BBB-(ZW) (triple B minus) previously. The rating downgrade is reflective of the adverse impact of recent developments on the insurer’s solvency and liquidity. Although it is GCR’s understanding from discussions with management that parent Altfin Holdings has undertaken to urgently recapitalise the business, with a view to providing a cash injection of up to US$5m within 30 days, timing is critical given Altfin’s currently weak capitalisation and resultant liquidity constraints. In this regard, the Altfin rating has been placed on Rating Watch and failure to raise capital within the aforementioned time frame may result in further rating action.
As detailed in a subscriber alert released in June 2012, Interfin Banking Corporation (“Interfin”) was recently placed under the management of a curator for a period of 6 months1. At FYE11, US$1.1m of Altfin’s cash and equivalents (equating to 61% of liquid assets and 65% of capital) was held by Interfin Bank. GCR had previously raised concerns regarding the significant concentration risk inherent in the placement of a substantial proportion of cash with a single counterparty in the 2011 rating review report. In this regard, GCR considers the insurer’s capitalisation weak at present, and insufficient to support its business plan. In view of the aforementioned exposure to Interfin, unencumbered cash balances are severely constrained, with liquidity risk elevated and viewed as a significant constraint to the rating. The annualised international solvency margin was reported at 16% as at 1Q F12 (FYE11: 27%), due to aggressive premium growth. Excluding encumbered cash balances, adjusted solvency would register at just 5% (annualised). Unencumbered cash and equivalents of US$0.2m equate to claims coverage of
around one month (annualised), and are negligible when compared to the insurer’s technical liabilities.
1 For further information, subscribers are referred to the alert relating to the withdrawal of Interfin rating coverage issued in June 2012.
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