News Middle East24 Feb 2020

Middle East:FAIR oil syndicate seen to have strong balance sheet

24 Feb 2020

FAIR Oil & Energy Insurance Syndicate has a strong balance sheet, as well as an adequate operating performance, neutral business profile and appropriate enterprise risk management, notes AM Best.

Reflecting these factors, the international credit rating agency has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of the Syndicate. The outlook of these credit ratings is stable.

The Syndicate is one of four reinsurance vehicles formed by the Federation of Afro-Asian Insurers and Reinsurers (FAIR), with a remit to write energy business. The Syndicate’s 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 Syndicate’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is assessed at the strongest level. Given the Syndicate’s small capital base, AM Best believes prospective risk-adjusted capitalisation is susceptible to volatility.

The balance sheet strength assessment benefits from a conservative investment portfolio by asset class and prudent reserving strategy. The Syndicate has demonstrated its financial flexibility through a revision to its capital strategy in 2016, which resulted in it successfully making cash calls to members for outstanding subscribed units.

The Syndicate has demonstrated healthy profit generation over the past five years (2014-2018), with an average combined ratio of 82.0%. A net profit of $2.3m was reported in 2018, compared with $1.4m in 2017, which was negatively impacted by a single full limit loss.

Preliminary 2019 results indicate a loss of $3.4m following reserve strengthening on two large losses incurred in 2014 and 2017. Operating profits are driven principally by the performance of technical operations, augmented by marginal but stable returns from investment activities.

Although limited in size, the Syndicate benefits from a defendable niche business profile. Members provide the Syndicate with good access to energy risks across the Afro-Asia territories, supplemented by business written through the open market across the region.

Whilst the Syndicate is concentrated heavily by line of business, it benefits from diversification through the geographical spread of its business, says AM Best.


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