Global Indemnity Rating Affirmed by A.M. Best - Analyst Blog

Global Indemnity plc GBLI got its issuer credit rating (ICR) of “bbb”, affirmed by the rating agency A.M. Best.  The rating agency also testified the financial strength rating FSR of “A” and the ICR of “a” for Wind River Reinsurance Company, Ltd., a subsidiary of Global Indemnity.

The securities which are lying in shelf registration have also been rated. The senior unsecured debt has been rated “bbb”, subordinated unsecured debt has been rated “bbb” while the preferred stock got a rating of “bb+”.

The rating affirmation of Wind River Re takes into consideration the unit's robust capital position and its financial flexibility. The company's efforts to consistently improve underwriting results and manage catastrophe losses have raised the company's esteem in the eyes of the rating agency. The company derives capital strength from its limited premium base, conservative balance sheet and the financial support it gets from being part of Global Indemnity.

The U.S. subsidiaries of Wind River Re, which work closely on an intercompany reinsurance pooling agreement basis, have also given a superior operating performance. The unit has taken measures to enhance its operational by cancelling unprofitable reinsurance contracts signed in 2011 and focusing on the underwriting of conventional treaty reinsurance, primarily catastrophe-oriented placements.

But the rating agency critically views the company's exposure to catastrophe losses, elevated underwriting expenses and exposure to equity in its investment portfolio. The rating agency notes that though the company's underwriting expenses are well controlled, expense ratio – measured as a proportion of premium earned – stays at an elevated level given a low denominator (i.e. low premium). Also, the company is witnessing growing equity leverage due to the rising value of equity in recent months.

The rating agency overrules any positive rating action in the near term given its volatile underwriting results. However, a negative rating action is not ruled out in case of deterioration in the unit's capital position or the company's operations and reserve levels.

All the ratings are of investment grade and carry a stable outlook. Financial strength and credit ratings, which intend to measure a company's ability to meet policyholder obligations, are important factors influencing public confidence and creditworthiness of a company, and hence its competitiveness. An investment grade debt rating with a stable outlook reflects optimism on the company.

While Global Indemnity carries a Zacks Rank #4 (Sell), better-ranked players include Allied World Assurance Company Holdings, AG AWH, AmTrust Financial Services, Inc. AFSI and  Aspen Insurance Holdings Ltd. AHL. All these stocks carry a  Zacks Rank #1 (Strong Buy).
 

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