A.M. Best Removes Ratings of LocalTapiola From Under Review
A.M. Best Europe – Rating Services Limited has removed from under review and affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of LocalTapiola General Mutual Insurance Company (LocalTapiola) (Finland) (formerly known as Tapiola General Mutual Insurance Company [Tapiola General]). The outlook for the ratings is stable.
The ratings reflect LocalTapiola's strong consolidated risk-adjusted capitalisation and excellent business profile as a leading mutual insurer within its domestic market. An offsetting factor for the ratings remains the company's weak underwriting performance. The company formerly known as Local Insurance Mutual Company merged into Tapiola General on 31 December 2012 and the merged company subsequently changed its name to LocalTapiola. LocalTapiola has been operating since 1 January 2013.
In anticipation of improved overall results, risk-adjusted capitalisation is projected to remain strong at the end of 2012. Tapiola General's risk-adjusted capitalisation deteriorated in 2011, largely due to a decrease in the claims equalisation reserve (EUR 456.4 million at year-end 2011, which accounted for approximately 40% of Tapiola General's capital and surplus), precipitated by underwriting losses made during the year. Given the company's mutual status, financial flexibility remains limited. Nevertheless, prospective capitalisation within the merged company is expected to remain stable, enhanced by an increase in the claims equalisation reserve.
Following actions implemented by management to improve risk selection and underwriting performance, as well as overall favourable claims activity during the year, interim technical results in 2012 showed significant signs of improvement compared to the same period the previous year. Given the lack of severe winter storms, Tapiola General expects to report a combined ratio of approximately 100% by year-end 2012. In 2011, Tapiola General reported an underwriting loss of EUR 149.3 million (2010: loss of EUR 90.1 million), owing to the impact of severe winter storms at the end of the year. Additionally, reserve strengthening on the company's motor third party liability and workers' compensation portfolios due to a change in mortality assumptions contributed to the deterioration in technical performance.
LocalTapiola is expected to maintain an excellent business profile as the largest mutual insurer in Finland. The merger will make the company one of the largest non-life insurers within Finland with an anticipated market share of around 30%, corresponding to gross premium income in excess of EUR 1 billion. It is anticipated that some economies of scale will be achieved as a result of the merger whilst simultaneously expanding LocalTapiola's distribution network across 19 regional mutual insurers, which were previously part of the Local Insurance Group. The company will continue to benefit from additional revenues and cross-selling opportunities offered by its banking subsidiary, Tapiola Bank Ltd, which specialises in retail banking services and housing mortgage lending.
Positive rating movements are unlikely at present.
Negative rating movements could occur if there were a notable reduction in LocalTapiola's consolidated risk-adjusted capitalisation and/or a continued deterioration in technical performance.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best's Ratings”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding Universal BCAR”; and “Rating Members of Insurance Groups”. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
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