23 September 2014

Gulf Re under review: AM Best

Rating agency AM Best has placed Gulf Reinsurance under review with negative implications. The ratings will be reviewed again by the end of November 2014.

This follows an accepted appeal by Gulf Re where new information was provided outlining enhanced strategic initiatives that are expected to be implemented by the company.

Gulf Re’s current financial strength rating of A- (Excellent) and the issuer credit rating of “a-” are under review with negative implications.

AM Best said: “The under review with negative implications status reflects the weak technical performance of Gulf Re, coupled with the company’s ability to finalise stronger alignment with its joint shareholder, Arch Capital Group Ltd (ACGL).”

The reinsurer’s underwriting performance is strained, with technical losses in four out of five full years of operation. The rating agency said the weak performance reflects high expense costs associated with the start-up operation, combined with a higher than expected frequency of large losses in recent years.

Gulf Re has also experience two large claims in 2014, forecasting the loss ratio to rise above 100 percent for the year, which will result in capital and surplus falling below the $200 million with which the company was founded.

“Positive rating actions are currently unlikely. Negative rating pressure could result if AM Best’s view of the level of support provided by ACGL to Gulf Re changes or if Gulf Re is unable to demonstrate reduced earnings volatility within the technical account,” said the rating agency.

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