A M Best s Rating Report United Insurance Company Limited Bridgetown, Barbados Revision Date: August 23, 2013 United Insurance Co. Ltd. has a Rating of A- (Excellent)
Operating Company Non-Life Ultimate Parent: Neal & Massy Holdings Limited UNITED INSURANCE COMPANY LIMITED P.O. Box 1215, United Insurance Centre, Lower Broad Street, Bridgetown BB11000, Barbados Web: www.unitedinsure.com Tel: 246-430-1900 AMB#: 86916 Ultimate Parent#: 052292 Fax: 246-436-7573 Report Revision Date: 08/23/2013 BEST'S CREDIT RATINGS Best's Financial Strength Rating: A- Best's Issuer Credit Rating: A- Outlook: Stable Outlook: Stable Best's Financial Size Category: VII RATING RATIONALE Rating Rationale: The ratings reflect United Insurance Company Limited's (United) solid capitalization, historically favorable underwriting performance and leading regional market profile. Partially offsetting these strengths are the increasingly competitive regional markets in which United operates, the company's reliance on reinsurance as a catastrophe risk mitigation strategy and significant losses from its assumed reinsurance segment over the past several years. Historically, United has reported consistent overall profits as a result of prudent underwriting in its Caribbean markets and steady stream of investment revenue. Additionally, United has been able to significantly enhance its capitalization by retention of earnings, given its parent's minimal dividend requirements. United is a leading insurer in several of its markets and enjoys excellent brand recognition throughout its regional operating territories. Catastrophe risk is mitigated by United's conservative reinsurance program, which has protected the company's surplus from catastrophic losses despite increased hurricane activity in the region. The ratings further reflect United's corrective action plans implemented to exit and run-off its assumed reinsurance business and refocus on its core Caribbean book of business. Reinsurance costs have impacted earnings, and catastrophic events present a substantial level of risk exposure to United and other insurers in the region. The costs associated with the company's heavy reliance on reinsurance are somewhat mitigated by the utilization of United's captive reinsurer for lower cat layers. Regional insurance markets are becoming increasingly competitive, and United's business retention and market share will continue to be challenged by other local and regional insurers. While the outlooks for United are currently stable, potential negative rating triggers could include protracted adverse operating results that are exacerbated by a large catastrophic event. Positive rating actions could occur if the company exhibits sustainable long-term improvements in operating performance coupled with improvements in Barbados's macroeconomic environment and country risk tier. FIVE YEAR RATING HISTORY BEST'S Date FSR ICR 08/23/13 A- a- 07/13/12 A- a- 07/05/11 A- a- 05/06/10 A- a- 02/04/09 A- a- 2
BUSINESS PROFILE United Insurance Company Limited (United) is a Barbados-domiciled property and casualty insurance company with its home office in Bridgetown. It has been underwriting property and casualty business across a number of Caribbean islands since 1977. Neal & Massy Holdings Ltd. (N&M), a Trinidad-based conglomerate, owns 100% of United's immediate parent Barbados Shipping & Trading Company Limited, which in turn owns 100% of United. N&M, one of the largest entities in Trinidad, is publicly traded on the Barbados and Trinidad stock exchanges. United has several key direct subsidiaries as part of its corporate structure. United Reinsurance ICC Inc. (United Re) is a St. Lucia-domiciled captive that provides reinsurance for select classes of business written by United. UI Management Inc. is a Barbados-domiciled company that provides management services for offshore insurance companies (60% owned by United). United Services Inc. is a Barbados-domiciled services company set up to facilitate the recovery of domestic VAT (value-added tax). Scope of Operations: United writes all major non-life classes of insurance, with its property segment accounting for over 50% of the gross premium written (GPW). The company's automobile segment and its accident and health segment represent between 15-20% each, marine and other segments make up the remainder. United is licensed in Antigua, Aruba and the Netherlands Antilles, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Montserrat, St. Lucia, St. Vincent and the Grenadines, Turks & Caicos and Trinidad & Tobago. Barbados is the company's largest market and typically accounts for just over 32% of GPW, followed by Trinidad & Tobago with 22%, Aruba and the Netherlands Antilles (11%), Antigua (9%),, St. Lucia (8%), with Turks, Bahamas, St. Vincent, Grenada, Belize, Dominica, Montserrat, and Guyana making up the remainder. United's reinsurance segment, which the company is in the process of exiting, had represented up to 16% of GPW in prior years, but at YE2012 made up approximately 7% of premiums on gross and net basis and is not allocated by geography. As is the case with many of the insurance companies operating in the Caribbean, United generates its business through a network of local agents, brokers and branch offices. Business Trends: United, like most Caribbean property/casualty writers, cedes the majority of its property premiums to reinsurers while retaining a much larger portion of its motor and accident lines. Over the past several years United's assumed reinsurance segment has negatively impacted the company's overall results. United's management team has undertaken corrective action and has begun to exit and run-off its assumed reinsurance business and will refocus its operating strategy on its core Caribbean book of business. Market Share/Market Presence: United maintains a strong market position in many of the territories that it operates in, most notably in Barbados, Antigua, Montserrat, Turks & Caicos and St. Lucia, but also has a notable presence in Trinidad, Grenada and St. Vincent. RISK MANAGEMENT United continues the process of formalizing its Enterprise Risk Management (ERM) program and has utilized its parent company and third party consultants for support. While the company is still only in the early stages of its formal ERM program, it does practice risk management on an informal basis throughout the organization. Ultimately risk management is the responsibility of the board of directors and implemented by senior management, but United also receives guidance from its ultimate parent, Neal & Massy, existing risk management procedures. Within United's present informal ERM framework the areas of focus are internal audit, accounting/financial, strategic planning, legal, reinsurance, marketing, credit management, internal audit, organizational compliance, health and safety, and complaints management. Catastrophe Exposure and Management: United maintains a comprehensive reinsurance program comprised of quota share, surplus and excess of loss treaties. United will usually cede between 50-60% (this is now approx. 40%) of gross written premiums to reinsurers. United, like all rated primary property/casualty insurance companies doing business in the region, rely heavily on reinsurance protection because of the significant exposure to catastrophic events. Major reinsurers participating in its reinsurance program are Lloyd's, Hannover Re, Odyssey Re, Everest Re, SCOR, PartnerRe, Transatlantic Re, Swiss Re and Munich Re among others. 3
United utilizes its St. Lucia-domiciled captive reinsurance company, United Re, to alleviate some reinsurance costs on the first layers of its reinsurance program. OPERATING PERFORMANCE Operating Results: United's operations have been historically profitable. Earning trends had been consistently favorable with combined ratios below 100% despite frequent catastrophic wind events in the Caribbean. However, losses from the company s reinsurance segment have had a significant drag on overall earnings, resulting in a net loss in 2011. However, in 2012, United reversed much of this negative trend and began to move towards its previous levels of profitability. Return on equity (ROE) in 2012 was 10% and United s five year average ROE is 6%. Return on revenue followed similar trends and was 18% in 2012 and 10% on a five year basis. Underwriting Results: United s underwriting results have been adversely affected by the company s aforementioned assumed reinsurance segment. Combined ratios trended higher since a five year low of 87.3% in 2008 to a five year high in 2011 of 122.8%. 2011 results were exacerbated Hurricane Tomas which occurred in United financial year end 2011. As United has begun to exit its assumed reinsurance segment in 2012, underwriting results have begun to improve and reflect the strong results from the company s core Caribbean book of business. United's historically favorable loss experience from its Caribbean business is attributable to its strict underwriting and prudent risk management. Risks are concentrated in properties constructed within strict building codes and properties away from coastal areas. United also benefits from the ability to easily effect rate strengthening when necessary in most of its markets. The company's accident segment along with its auto segment are the main contributors to earnings, while its inward reinsurance operations have generated substantial losses. Investment Results: Investment income provides a stable flow of revenue for United and typically provides a benefit of BB$9 and BB$11 million annually. In 2012, net investment income declined marginally due in large part to lower yields, but were more than offset by unrealized gains of BB$2.6 million. Realized gains and losses have generally not been a significant component of earnings (or losses) with the exception of 2011 when United realized just under BB$1 million in gains as it readjusted the composition of its investment portfolio. BALANCE SHEET STRENGTH Capitalization: United maintains more than adequate risk-adjusted capitalization for its current business profile when measured by Best's Capital Adequacy Ratio (BCAR). United has historically produced profitable operating results and prudent management of catastrophe risk exposure has enabled the company to grow its capitalization internally. United's growing capital position and prudent retention of premiums have also resulted in somewhat stable and consistent underwriting leverage in recent years. Capitalization is also protected by United's reinsurance program, which limits its net retention from a single catastrophe to under 10% of capital and surplus. Liquidity: United's liquidity position remains adequate. Liquid assets account for more than half of total assets and are mainly comprised of government and corporate bonds, cash and short-term instruments and mutual funds with the remainder in common stocks. United's risk tolerance is low as evidenced by the composition of its investment portfolio. Fixed income securities and cash and short-term investments typically represent between 75% of invested assets with equities and other investments (including real estate) representing approximately 15% and 10% respectively. 4
Summarized Accounts as of September 30, 2012 Data reflected within all tables of this report has been compiled from the financial statements of this company (Source: Company Financial Statement). US $ per Local Currency Unit.5074 = 1 Barbados Dollar (BBD) ASSETS 09/30/2012 09/30/2012 09/30/2012 BBD(000) % of total USD(000) Cash and equivalents 52,245 11.9 26,509 Long term fixed maturity investments 92,047 21.0 46,705 Equity investments 35,657 8.1 18,092 Short term investments 40,451 9.2 20,525 Mortgage loans 3,085 0.7 1,565 Real estate owned 19,413 4.4 9,850 Invested assets 190,653 43.6 96,737 Receivables 67,419 15.4 34,208 Reinsurance recoverable 38,709 8.8 19,641 Equity in unconsolidated subsidiary 4,517 1.0 2,292 Other assets 84,277 19.3 42,762 Total assets 437,820 100.0 222,150 LIABILITIES & SURPLUS 09/30/2012 09/30/2012 09/30/2012 BBD(000) % of total USD(000) Property / Casualty reserves 141,007 32.2 71,547 Unearned premium reserves 104,776 23.9 53,163 Total policy reserves 245,783 56.1 124,710 Other liabilities 46,493 10.6 23,591 Total liabilities 292,276 66.8 148,301 Equity - common stock 8,900 2.0 4,516 Accumulated other comprehensive income 32,885 7.5 16,686 Retained earnings 88,314 20.2 44,811 Other equity 15,445 3.5 7,837 Total equity 145,544 33.2 73,849 Total liabilities & equity 437,820 100.0 222,150 5
STATEMENT OF INCOME 09/30/2012 09/30/2012 BBD(000) USD(000) Gross premiums written 201,152 102,065 Reins ceded 128,781 65,343 Net premiums written 72,371 36,721 Change in unearned premiums -7,096-3,601 Net premiums earned 79,467 40,322 Total fee income 22,183 11,256 Net investment income 9,762 4,953 Net realized gains/(losses) -188-95 Net unrealized gains/(losses) 2,580 1,309 Other revenue 1,634 829 Total revenue 115,438 58,573 Benefits & reserves 43,747 22,197 Operating expenses 59,692 30,288 Non-operating expenses 412 209 Total benefits & expenses 103,851 52,694 Earnings before interest & taxes (EBIT) 11,587 5,879 Equity in income of unconsolidated subsidiaries 616 313 Pre-tax income/(loss) from continuing operations 12,203 6,192 Total taxes -2,089-1,060 Net income/(loss) before minority interest 14,292 7,252 Minority interest -158-80 Net income/(loss) from continuing operations 14,134 7,172 Net income/(loss) 14,134 7,172 6
STATEMENT OF CHANGES IN EQUITY 09/30/2012 09/30/2012 BBD(000) USD(000) Common shares, beginning balance 8,900 4,516 Common shares, ending balance 8,900 4,516 AOCI - beginning balance 30,015 15,230 AOCI - other 2,870 1,456 AOCI - ending balance 32,885 16,686 Other equity, beg. bal. 15,287 7,757 Other equity, misc. 158 80 Other equity, end. bal. 15,445 7,837 Retained earnings, beginning balance 76,892 39,015 Retained earnings, net income 14,134 7,172 Retained Earnings, other -2,712-1,376 Retained earnings, ending balance 88,314 44,811 Total shareholder equity 145,544 73,849 STATEMENT OF CASH FLOWS 09/30/2012 09/30/2012 BBD(000) USD(000) Net cash provided/(used) in operating activities -18,481-9,377 Net cash provided/(used) in investment activities 22,810 11,574 Total increase (decrease) in cash 4,329 2,197 Cash, beginning balance 47,916 24,313 Cash, ending balance 52,245 26,509 HISTORY The company was incorporated in Bridgetown, Barbados, on September 30, 1976, and commenced operations on January 1, 1977. United was formed out of the amalgamation of agencies of Royal Insurance Co., Guardian Royal Exchange and Sun Alliance, three British companies operating in Barbados at the time. These companies became minority shareholders in the new company (United) with Barbados Shipping & Trading Company Limited (BS&T) becoming the majority shareholder. Neal & Massy Holdings Ltd. (N&M), a Trinidad-based conglomerate, currently owns 100% of United's immediate parent (BS&T), which in turn owns 100% of United. United is authorized to issue an unlimited number of ordinary shares without par value. Issued capital is currently BBD 8.9 million comprised of 4,200,000 ordinary shares of no par value. During 1999, the company issued 200,000 ordinary shares with no par value for a consideration of BBD 900,000. 7
MANAGEMENT Leadership and administration of the company's affairs are under the direction of Howard H. Hall, Managing Director. Mr. Hall joined United Insurance on August 1, 2011. OFFICERS CEO: Howard Hall CCO: Mark Sommerville CFO: Richard Boddy Manager: Sharron Alleyne-Elcock (Marketing) Manager: Robert R. Branch (Systems) Manager: Cecile Cox (Regional) Manager: Heather A. Del Castilho (Reinsurance) Manager: Joann V. Estwick (Credit Controller) Manager: Lorraine Hurley (Project) Manager: Lee-Ann Millar-Mendes (Human Resources) Manager: Tessha Myers (Finance) Manager: Carl Norris (Underwriting) Manager: Mark Sutherland (Auditor) DIRECTORS F. Delmas J. O'Connell H. H. H. Hall P. Rajkumarsingh G. A. King P. G. Symmonds D. N. O'Brien E. G. Warner (Chairman) R. P. Young TERRITORY Antigua, Aruba and the Netherlands Antilles, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Montserrat, St. Lucia, St. Vincent and the Grenadines, Turks & Caicos and Trinidad & Tobago. BALANCE SHEET ITEMS BBD BBD BBD BBD BBD (000) (000) (000) (000) (000) Invested assets 190,653 201,756 205,850 195,203 168,119 Total assets 437,820 435,183 420,398 405,993 375,912 Total liabilities 292,276 304,089 280,101 267,454 244,027 Total equity 145,544 131,094 140,297 138,539 131,885 Total capital 145,544 131,094 140,297 138,539 131,885 INCOME STATEMENT ITEMS BBD BBD BBD BBD BBD (000) (000) (000) (000) (000) Gross premiums written 201,152 225,324 222,450 197,868 201,179 Net premiums written 72,371 97,263 92,098 94,874 93,479 Net investment income 9,762 10,037 10,456 9,885 9,154 Net realized gains/(losses) -188 907 211 55 Net income/(loss) 14,134-9,331 6,094 14,619 18,228 LIQUIDITY RATIOS (%) Total investments to total reserves 98.8 96.3 101.6 95.7 91.6 Liquid assets to total liabilities 75.4 74.4 77.1 73.1 70.3 Total investments to total liabilities 83.1 82.1 85.8 82.1 80.0 Bonds to total reserves 37.5 38.3 42.1 43.4 37.5 8
PROFITABILITY RATIOS (%) Loss ratio 55.1 70.7 61.1 58.6 57.3 Expense ratio 47.2 52.2 43.9 35.8 30.0 Combined ratio 102.3 122.8 104.9 94.3 87.3 Investment income ratio 12.3 11.1 11.3 10.1 10.2 Return on assets 3.2-2.2 1.5 3.7 5.2 Return on revenues 17.8-10.3 6.6 14.9 20.3 Return on equity 10.2-6.9 4.4 10.8 14.7 LEVERAGE & DEBT RATIOS (%) Net premiums written to equity 49.7 74.2 65.7 68.5 70.9 Cash and equivalents to total assets 21.2 21.5 21.6 15.1 15.8 9