LONDON–(BUSINESS WIRE)–AM Best revised the outlook from negative to stable for the issuer’s long-term credit rating (long-term ICR) and affirmed the financial strength rating (FSR) of A (Excellent) and the long-term ICR of “a+” (Excellent) from MS Amlin AG (Switzerland). The outlook for the FSR is stable.
These credit ratings (ratings) reflect the strength of MS Amlin AG’s balance sheet, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and enterprise risk management (ERM) appropriate. In addition, MS Amlin AG’s ratings are benefiting from an upgrade thanks to the support of its ultimate parent company, MS&AD Insurance Group Holdings, Inc. (MS&AD).
The revision of the long-term ICR outlook to negative reflects pressure on the proper assessment of MS Amlin AG’s operating performance, following weakening underwriting performance since 2017.
MS Amlin AG is expected to record a significant after-tax loss for 2021, reflecting a combined ratio well above 100%, only partially offset by investment income. The underwriting loss is primarily due to high natural catastrophe losses and unfavorable development of the company’s COVID-19 and non-catastrophic reserves.
MS Amlin AG’s operating performance has been volatile in recent years, with return on equity (ROE) ratios ranging from over 10% in 2018 and 2019 to -12% in 2017. In 2021, the company is expected to record a another two-digit negative ROE. The company has implemented a number of corrective actions in 2021 and 2022 to strengthen underwriting performance. If these actions do not translate into sustainable technical profitability, a deterioration of the long-term ICR is likely.
The adequate assessment of MS Amlin AG’s operating performance reflects a track record of strong underwriting results and operating performance, demonstrated by a 10-year (2011-2020) weighted average combined ratio of 96.2% and a weighted average ROE over 10 years of 6.3%. Poor performance over the 2016-2020 period resulted in weaker five-year equivalent measures of 104.5% and 1.9%, respectively. These metrics are expected to deteriorate with the company’s 2021 results.
Despite expecting a large loss for 2021, MS Amlin AG’s risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), is expected to remain comfortably at the highest level. The unfavorable evolution of reserves since 2017 has had an adverse impact on the company’s underwriting performance and balance sheet strength. The corrective actions, implemented in 2021 and ongoing in 2022, should result in greater reserve stability.
MS Amlin AG is a medium-sized reinsurer operating in Bermuda, Zurich and the United States, with a market position and brand benefiting from its association with MS&AD. Although the company has significantly reduced its catastrophe exposure in recent years, product risk remains high, exposing the company to earnings volatility and risk-adjusted capitalization. Further reductions in catastrophe exposures are expected.
Poor underwriting performance over the 2017-2021 period highlighted weaknesses in the company’s underwriting and provisioning risk management capabilities. MS Amlin AG’s ERM should benefit from changes to its management team, including the appointment of a new CEO, and corrective actions focused on processes and controls for underwriting and provisioning activities.
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