GCR affirms AA+ rating on Mutual & Federal
Global Credit Ratings (GCR) has affirmed its AA+ (double a plus) rating on the claims paying ability of Mutual and Federal Insurance Company Ltd (M&F), with a stable rating outlook.
According to GCR, the rating is based on M&F’s significant market position as the second largest insurer in terms of gross written premium (GWP), and is underpinned by its strong brand, substantial underwriting capacity and expansive distribution network. “This, together with the synergies at group level, supports the insurer’s market position against a backdrop of a highly competitive landscape.”
GCR notes that M&F’s underwriting margin has trended below that of the broader industry average (albeit fairly in line with peer group metrics). This has largely been a function of diminished scale economies, given sizeable top line reductions following three years of negative premium growth. Underwriting profitability is projected to remain thin in the near term, owing in part to the somewhat elevated earned loss ratio, although efficiency gains are expected to alleviate profit strain in the medium term.
Solvency metrics have been elevated over the past three years, attributable to the combination of premium contractions and capital generation in respective periods. “The international solvency margin is forecast to remain at an adequate level in terms of GCR’s requirement for the current rating, and is supportive of the company’s expansionary business plans,” said GCR in a statement.
GCR says capitalisation is supported by lowered investment risk exposure, following M&F’s listed equity disposals in F11. Furthermore, with a sizeable 71% of the investment portfolio invested in cash and equivalents, M&F reflects sound liquidity metrics and no change to the investment strategy is expected in the short to medium term.
“This notwithstanding, the revised asset mix limits the profit feed from the investment account going forward (having historically represented in excess of 80% of before tax profits). This heightens the need for increased underwriting profitability going forward.”
M&F has forecast an aggressive GWP growth target of 12% for F12, with growth expected to emanate from the commercial book. “A key risk factor, however, remains the high level of competition and resultant pricing pressures seen in the insurer’s key books, with property and motor representing 88% of the risk base,” says GCR.
