A.M. Best Affirms Ratings of Energas Insurance (L) Limited

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of Energas Insurance (L) Limited (Energas) (Malaysia). The outlook for both ratings is stable.

The ratings reflect Energas’ adequate capitalization, favorable underwriting performance since inception, sound reinsurance protection and liquidity. The ratings also recognize the strategic role of Energas as the primary insurance carrier for its ultimate parent, Petroliam Nasional Berhad (Petronas); the role of Energas as an integral component in the overall risk management program of the group; and the strong commitment from the parent company.

Energas has consistently reported positive underwriting income supported by a sound reinsurance arrangement, which protects the company’s aggregate loss exposure from a catastrophe event and whole account, and low operating expenses. A.M. Best believes that the underwriting risk exposure for Energas is limited.

In addition, Energas allocated 60% of its assets in cash and cash equivalents in fiscal year 2010 (ending March 31, 2011). Such allocation provides a strong liquidity for the company. In A.M. Best’s view, Energas’ operating result could be maintained positively in a worst case scenario regarding the reinsurance structure, the operating expenditure and the prudent investment strategy.

Partially offsetting these positive rating factors is Energas’ relatively small underwriting portfolio, which resulted in high volatility in the underwriting result since inception. Annual fluctuations in the loss ratio and expense ratio are due to the relatively small underwriting portfolio (several claims in a year will have a relatively larger impact on underwriting results).

Any rating movement could occur if there were a change in Petronas’ financial strength.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding Universal BCAR’”; “Catastrophe Analysis in A.M. Best Ratings”; “Assessing Country Risk”; “Risk Management and the Rating Process for Insurance Companies”; and “Alternative Risk Transfer (ART).” Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology.