A.M. Best has assigned a Financial Strength Rating of B (Fair) and a Long-Term Issuer Credit Rating of “bb+” to Bahrain-based FAIR Oil & Energy Insurance Syndicate (FOEIS), one of the four reinsurance vehicles formed by the Federation of Afro-Asian Insurers and Reinsurers (FAIR), with a remit to write energy business. This is the first time for one of the FAIR’s pools to be rated by an international rating agency.
FOEIS’ members are drawn from participants of FAIR, who subscribe to the Syndicate’s units of capacity. Whilst unique in its legal structure, the Syndicate operates like a traditional reinsurer, providing capacity and expertise to its cedants.
The ratings reflect FOEIS’ strong risk-adjusted capitalisation, specialist business profile in the Afro-Asian energy sector and track record of robust technical profitability.
The outlooks assigned to these credit ratings are positive, reflecting the anticipated strengthening of the Syndicate’s risk-adjusted capitalisation coupled with improvements expected in its enterprise risk management framework.
Mr Nabil Hajjar, Managing Director of FOEIS, said: “Our quest in seeking professional rating for the Syndicate has been fruitful. We are now proud to be the first entity of its kind to be rated by an international rating agency like A.M. Best. Such classification puts us on track for progressing our standing for higher upgrades ahead. While this positive grade may not reflect a highly recognisable status, we regard the rating itself as an achievement and a step forward for the Syndicate.”
FOEIS’ risk-adjusted capitalisation strengthened considerably during 2016, driven by the Syndicate’s shift in capital management strategy. FOEIS’ capital base is composed of its retained earnings, general reserve, and paid-up subscribed units of capacity. Historically, the Syndicate had required members to pay up 10% of their subscribed units, with the remaining amount callable at the Syndicate’s request.
In October 2016, the Syndicate changed its capital strategy, and made a cash call on all outstanding subscribed units. Concurrently, FOEIS has mandated that no cash distributions would be made until outstanding amounts are received from members. As at year-end 2016, FOEIS had received approximately 40% of called capital, with the remaining expected to be fully paid by year-end 2017. As a result of increased paid-up subscribed units and retained earnings, the Syndicate’s risk-adjusted capitalisation improved materially in 2016, and is likely to see further strengthening in 2017 once all units are fully paid up.
Although limited in size, FOEIS benefits from a defendable niche business profile. Its membership provides the Syndicate with good access to energy risks in the Afro-Asian territories, which is supplemented by business written through the open market across the region.
In response to low oil prices affecting the Syndicate’s growth, FOEIS has further diversified its profile by accepting nuclear energy risks.
FOEIS recorded a net profit of US$3.3 million in 2015, an increase from $2.7 million in 2014. The increase was driven by an improvement in the company’s technical operations, which saw the combined ratio fall from 71.2% in 2014 to 64.2% in 2015.
FOEIS has demonstrated a strong level of technical profitability, delivering a five-year (2011-2015) average combined ratio of 69.6%. Draft accounts for 2016 indicate a level of technical profitability in line with what the Syndicate reported in 2015.