Best’s News & Research Service - December 13, 2019 10:03 AM (EST)
AM Best Withdraws Credit Ratings of Capital Life Insurance Company Limited
- December 13, 2019 10:03 AM (EST)
Singapore //BestWire// - AM Best has affirmed the Financial Strength Rating of C- (Weak) and the Long-Term Issuer Credit Rating of “cc” of Capital Life Insurance Company Limited (CLI) (Papua New Guinea). The outlook of these Credit Ratings (ratings) is stable. Concurrently, these ratings have been withdrawn as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect CLI’s balance sheet strength, which AM Best categorizes as weak, as well as its adequate operating performance, limited business profile and weak enterprise risk management. The ratings factor in a neutral impact from the company’s 100% ownership by Capital Insurance Group Limited.
Risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at a very weak level at year-end 2018. This follows an internal control failure that resulted in notable reserve strengthening of the company’s medical portfolio, which led to a significant decline in shareholders’ equity at year-end 2017. The company’s management team has since implemented a number of remedial actions, including large premium rate adjustments and strengthening of policy conditions. AM Best expects these steps to generate additional retained earnings over the medium term, which will bolster prospective risk-adjusted capitalization.
A notable improvement in underwriting performance was seen in 2018, albeit still loss-making. Overall, the company reported an operating loss of PGK 2.2 million (USD 0.7 million) in 2018, as compared with PGK 7.0 million in 2017. AM Best expects CLI to report positive underwriting and operating earnings over the medium term, driven by an anticipated improvement in the performance of its core medical portfolio.
AM Best continues to view CLI’s business profile as limited given the company’s small scale of operations and niche portfolio of business. The company also is viewed to have a moderate level of product concentration and a high level of geographical concentration, with its entire premium base emanating from Papua New Guinea.
AM Best views CLI’s risk management as underdeveloped, with recent internal control failures and deficiencies having caused material volatility in the company’s earnings and capital adequacy. Despite significant management attention on improving the company’s risk management framework and governance, AM Best expects this will take some time to become effective.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM 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 AM 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 AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.