When A.M. Best assigned a B rating with positive outlook in February 2017 to FOEIS, it was a first in the region and a rarity that a syndicate was rated aside from Lloyd’s.
Though the positive grade may not reflect a highly recognisable status, the rating itself is an achievement and a step forward for the Syndicate, said Mr Hajjar. “We are proud to be the first entity of its kind to be rated by a reputable international rating agency like A.M. Best. Such classification puts us on track for progressing our standing for higher upgrades ahead.”
The Syndicate is an independent legal entity, established in Bahrain by a special Amiri Legislative Decree, and is governed by its Syndicate Agreement and Articles of Association.
It is one of four reinsurance arms formed by members of the Federation of Afro-Asian Insurers and Reinsurers (FAIR). The other three are the Aviation Pool, Non-Life Reinsurance Pool and the Natural Catastrophe Risk Pool.
It writes energy business from its base in Bahrain with Trust Re being the managing company. Unlike pools, the Syndicate operates like a reinsurance company in that it can accept business from members and other sources on a facultative basis. This is in contrast to pools where members are obliged to cede and retrocede the business.
The rating story
Aside from Lloyd’s, rating agencies rarely provide rating to syndicates, said Mr Hajjar. “Based on the fact that we are not a company, the rating agency searched for similarities between companies and syndicates to conduct the rating process.”
Though the Syndicate does not have capitalisation, it operates through units which members subscribe to provide the capacity to do business. One unit capacity is valued at US$100,000. The Technical Board of the Syndicate, equivalent to Board of Directors in any conventional company, allows each member to subscribe with a maximum of five units. The Syndicate has its own independent book of business and accounts similar to any reinsurance company.
The rating agency considered units as capital in a conventional company. “This was the main concern as capitalisation plays a major role in the rating process,” he said.
The rating exercise started in 2015 and came out with certain requirements to consider rating the Syndicate. “We managed to fulfil the requirements with the support of members. An example was creating a standalone ERM framework. FOEIS used to adopt the ERM programme of the managing company; Trust Re. Thus, we formed a risk committee from the Technical Board.”
By the end of 2016, FOEIS went through the rating exercise again and was moved up around three notches, leading to receive the rating at the beginning of the year.
Impressive records
FOEIS has a $25 million capacity to write onshore and offshore oil and gas risks, as well as construction and operational, renewable energy, conventional power plants and related coverages. FOEIS also has a $14 million capacity for nuclear power plants. Its territorial scope is across Asia, Africa, Russia with worldwide interest. The Syndicate includes 31 member companies from 21 Asian and African countries.
GWP for 2016 reached around $25 million, a y-o-y growth of around 20%. The notable growth in the past year is attributed to opening up to writing nuclear and renewable energy businesses. FOEIS’ combined loss ratio for the past 16 years is 47%. Net profit in 2015 reached $3.3 million, up from $2.7 million in 2014.
As oil prices dropped, construction activities weakened and, consequently, rates and prices went down, FOEIS decided to expand its activities, said Mr Hajjar. “The Syndicate foresaw this coming and therefore expanded acceptance to include renewable energy and nuclear power to make up for the downturn. Our income has stabilised over the past three years thanks to tapping into these new lines.”
The geographic expansion and writing new lines were supporting factors in the rating process.
Only the beginning
Though the current rating is not highly recognisable, especially for writing energy business, it is an achievement and a first step, said Mr Hajjar.
Being rated gives cedants greater confidence to accepting the Syndicate’s services. However, he said that rating, by itself, is not a goal. “FOEIS has been doing business and growing steadily even before gaining the rating. But being the first to receive the rating and our seriousness in upgrading it to a higher level, are major differentiators.”
Looking ahead, the Syndicate’s priority is to improve the rating classification. “Having a rating would start opening doors enough to step into the next stage. It is a stride towards acquiring stronger footing. We are set for this challenge and confident of FOEIS’ ability to go the extra mile,” he said.