A.M. Best has upgraded the Financial Strength Rating to B+ (Good) from B (Fair) and the Long-Term Issuer Credit Rating to “bbb-” from “bb+” of FAIR Oil & Energy Insurance Syndicate(FOEIS) (Bahrain). The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect FOEIS’ balance sheet strength, which A.M. Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The rating upgrades reflect the material growth in the syndicate’s absolute capital base and the resulting significant improvement in its risk-adjusted capitalisation.
FOEIS 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 FOEIS’ units of capacity. Whilst unique in its legal structure, the syndicate operates like a traditional reinsurer, providing capacity and expertise to its cedants.
FOEIS’ balance sheet strength is driven by the strongest level of risk-adjusted capitalisation, supported by a conservative investment portfolio and prudent reserving. Risk-adjusted capitalisation strengthened considerably in 2016 and 2017, owing to a change in capital strategy. In October 2016, the syndicate made a cash call on all outstanding subscribed units. As a result, all units have been fully paid up and the syndicate’s capital is expected to increase to approximately USD 28 million at year-end 2017 from USD 21 million at year-end 2016. Limiting factors to the balance sheet remain the exposure to unrated reinsurers in the retrocession panel and the relatively small overall capital base, which exposes risk-adjusted capitalisation to volatility.
FOEIS’ reported net profits for 2016 amounted to USD 3.1 million, a modest decline from USD 3.3 million in 2015. Operating profits are principally driven by the performance of its technical operations. FOEIS has demonstrated a strong level of technical performance, with a combined ratio of 74.4% in 2016, (2015: 65.2%). Draft accounts for 2017 indicate a higher-than-average combined ratio in excess of 90%, owing to a single large loss.
Although limited in size, FOEIS benefits from a defendable niche business profile. Members provide the syndicate with good access to energy risks across the Afro-Asian territories, supplemented by business written through the open market across the region. Whilst the syndicate is heavily concentrated by line of business, FOEIS benefits from diversification through the geographical spread of its business.