A.M. Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to 'aa-' from 'aa' and affirmed the Financial Strength Rating (FSR) of A+ (Superior) of Intercona Re AG (Intercona) (Switzerland).
The outlook of these Credit Ratings (rating) is stable.
The ratings reflect Intercona's balance sheet strength, which A.M. Best categorises as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The downgrade reflects the weakened financial strength of the company's ultimate parent, Nestle S.A. (Nestle), following changes in the group's capital structure. Intercona's ratings reflect its importance to Nestle, a leading global food and beverage company, and its high level of integration within the group's risk management function.
Intercona's balance sheet strength is underpinned by the strongest level of risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio. The balance sheet strength assessment benefits from a positive assessment of the holding company, reflecting Nestle's stronger credit profile. Intercona's adequate liquidity and capital buffers built up through the retention of earnings within its equalisation and fluctuation reserves further support its balance sheet strength.
The company's strong operating performance and ability to withstand volatility from large loss events is evidenced through a five-year average (2013-2017) combined ratio of 90.0%. Intercona's disciplined underwriting enabled the company to report pre-tax profits of CHF 77.1 million (excluding movement of equalisation and fluctuation reserves) in 2017, following a financial year loss of CHF 49.2 million in 2016, primarily driven by a natural catastrophe loss.
Intercona's business profile assessment reflects its role as the captive reinsurer of Nestle. Intercona provides the first layer of reinsurance protection on the group's global insurance programme, providing a diverse underwriting portfolio by geography and product. Intercona is a key part of its parent's overall risk management framework, assisting with the mitigation of risk exposures and loss prevention.
A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best's Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
This press release relates to Credit Ratings that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best's Credit Ratings. For information on the proper media use of Best's Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating Action Press Releases.
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