A.M. Best Affirms Ratings of Tugu Insurance Company Limited

HONG KONG--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Good) and issuer credit rating (ICR) of “bbb” of Tugu Insurance Company Limited(Tugu) (Hong Kong). The outlook for the FSR is stable, and the outlook for the ICR is positive.

The ratings reflect Tugu’s consistently conservative investment strategy and management’s initiatives to strengthen its claims reserve practice and claims management process.

Tugu maintains a stable portfolio mix, with cash and bonds accounting for 90% of its total invested portfolio over the past five years. It is expected that the company will continue to maintain a similar investment strategy going forward.

Tugu widened its scope of third-party actuarial review to all lines of businesses in 2010, with future reviews scheduled to be conducted on a more frequent basis. In addition, Tugu has taken proactive steps to settle outstanding claims in relation to the motor and employees’ compensation businesses in Hong Kong. The favorable settlement results improved Tugu’s overall loss experience during the first eight months of 2011.

Partially offsetting these positive rating factors are Tugu’s weakened risk-adjusted capital position and the volatility in its underwriting performance.

Tugu’s capital and surplus decreased to USD 44.6 million as of year-end 2010 from USD 54 million as of year-end 2009, primarily due to the absorption of its after-tax operating losses and dividend payments during the year. Nonetheless, A.M Best believes Tugu’s prospective risk-adjusted capitalization should remain adequate to support its overall risk profile, in view of the company’s anticipated modest premium growth and conservative investment portfolio over the next two years.

Tugu’s underwriting results remained volatile over the past five years, including fiscal-year 2010, with the combined ratio ranging between 98% (2006) and 149% (2010) and a five-year average of 118%. Loss ratio increased to 107.3% for 2010, compared to 60.3% for 2009, mainly due to the additional reserve provision for its Hong Kong and treaty businesses, which came under a more stringent reserving approach during that year.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding BCAR for Property/Casualty Insurers”; “Understanding Universal BCAR”; “Risk Management and the Rating Process for Insurance Companies.”, “Catastrophe Analysis in A.M. Best Ratings”; and “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2011 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Vivian Cheung, +852-2827-3411
Financial Analyst
[email protected]
or
Moungmo Lee, +852-2827-3402
General Manager
[email protected]
or
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
Senior Manager, Public Relations
[email protected]
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.