GCR has reaffirmed Infiniti Insurance Limited (“Infiniti”) national scale claims paying ability rating at A-(ZA) and the rating the outlook maintained at “Stable”.
Although Infiniti’s international solvency margin fell below GCR’s minimum prescribed requirement for the rating band as at FYE12, the minimum requirement was met as at 31 August F13. Given the anticipated growth trajectory, the board recognises that a capital injection is required to ensure that the minimum level is observed at all times. Whilst the demonstrated capital support from shareholders historically was considered, potential on-going delays were a main concern to GCR. In this regard, a key consideration in maintaining the rating was the commitment by shareholders that capital will be injected by no later than 31 March 2013, supporting the solvency requirement of 45%. This was provided by way of a letter of comfort.
It is GCR’s opinion that capital risk is elevated by the insurer’s investment strategy, given the high weighting in listed equities. Note was, however, taken of the small size of the equity portfolio relative to total equity market capitalisation and the fact that more than 75% of the entire equity portfolio can be traded in less than 24 hours, reducing potential losses. The out- performance of the portfolio relative to that of the market over the last four years illustrates the active management of investment risk, providing some comfort to GCR. Reinsurance protection is considered adequate, with prudent risk retention levels both on a per risk and event basis and the credit quality of the insurer’s reinsurance panel considered to be high.
The rating reflects Infiniti’s business model, which centres on the development of new and established UMAs and books of business from independent brokers, thus focusing on a partnership approach. In this regard, the insurer has made good progress in terms of growing its business. This notwithstanding, a higher level of operational risk is associated with this type of “outsourcing” model.
A positive movement on the claims paying ability rating or outlook could ensue as Infiniti’s track record as a rated entity develops and the insurer establishes a stable underwriting track record, with controlled revenue growth and maintenance of solvency at appropriate levels in line with GCR’s internal capital management model. A downward movement may arise if the solvency margin dipped below 45% on a sustained basis. This could also be triggered by a deterioration in the operating performance or significant equity market losses impacting on capital.
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