A M Best s Rating Report Massy United Insurance Ltd. Bridgetown, Barbados Revision Date: March 29, 2016 Massy United Insurance has a Rating of A- (Excellent)
Operating Company Non-Life Ultimate Parent: Massy Holdings Ltd. MASSY UNITED INSURANCE LTD. P.O. Box 1215, United Insurance Centre, Lower Broad Street, Bridgetown BB11000, Barbados Web: www.massyunitedinsurance.com Tel: 246-430-1900 Fax: 246-436-7573 AMB#: 86916 Ultimate Parent#: 052292 Report Revision Date: 03/29/2016 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 Massy United Insurance Ltd.'s (Massy United) supportive capitalization, historically favorable underwriting performance, good geographic spread of risk and leading regional market profile. Partially offsetting these strengths are the increasingly competitive regional markets in which Massy United operates, the company's exposure to catastrophic loss from severe weather events and strong reliance on reinsurance as a catastrophe risk mitigation strategy as well as significant losses from its assumed reinsurance segment earlier in the most recent five-year period. Furthermore, the weak economic conditions of the Caribbean countries in which it operates create challenges to overall operating performance and growth opportunities. Historically, Massy United reported consistent overall profits as a result of prudent underwriting in its Caribbean markets and steady stream of investment revenue. Additionally, Massy United has been able to significantly enhance its capitalization by retention of earnings, given its parent's modest dividend requirements and business diversification. The ratings further reflect Massy United's corrective action implemented to exit and run off its assumed reinsurance business beginning in 2012 and refocus on its core Caribbean book of business. Massy United is a leading insurer in several of its markets and enjoys excellent brand recognition throughout its regional operating territories. Massy United, formerly named United Insurance Company Limited, was rebranded as Massy United Insurance Ltd. as part of a group initiative to create a consistent and easily identifiable corporate image. The rebranding is expected to further strengthen the company's business profile in its core markets and has the potential to draw in new business through additional cross-selling opportunities in the future. Catastrophe risk is mitigated by Massy United's conservative reinsurance program, which has protected the company's surplus from catastrophic losses. The company's reinsurance costs can potentially limit earnings, and catastrophic events present a substantial level of risk exposure. The costs associated with the company's heavy reliance on reinsurance are somewhat mitigated by the utilization of Massy United's captive reinsurer for lower cat layers. Additionally, regional insurance markets are becoming increasingly competitive, pricing is soft and Massy United's business retention and market share will continue to be challenged by local and regional insurers.
While the outlooks for Massy United are currently stable, positive rating actions could occur if the company exhibits sustainable long-term improvements in operating performance coupled with improvements in Barbados' macroeconomic environment and country risk tier. Potential negative rating triggers could include adverse operating results relating to its Caribbean book of business that are exacerbated by a large catastrophic event or a downgrade to Barbados' country risk tier. FIVE YEAR RATING HISTORY BEST'S Date FSR ICR 03/29/16 A- a- 12/18/14 A- a- 08/23/13 A- a- 07/13/12 A- a- 07/05/11 A- a- BUSINESS PROFILE Massy United Insurance Ltd. (Massy 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. Massy Holdings Ltd (formerly named Neal & Massy Holdings Ltd.,) (Massy Holdings) a Trinidad-based conglomerate, owns 100% of Massy United's immediate parent Barbados Shipping & Trading Company Limited, now named Massy (Barbados) Ltd., which in turn owns 100% of Massy United. Massy Holdings, one of the largest entities in Trinidad, is publicly traded on the Barbados and Trinidad stock exchanges, albeit during 2015 it de-listed from the Barbados Stock Exchange but remained on Trinidad exchange. The company recently changed its name as part of an effort to make the group more easily identifiable and enhance synergies among subsidiaries. Massy United offers a full range of personal and commercial insurance products, and serves clients via a network of agents and sub-agents. It 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 Massy 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: Massy 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. Massy United is licensed in Antigua, Aruba and the Dutch Caribbean, 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 30% of GPW, followed by Trinidad & Tobago with 20%, Aruba and the Dutch Caribbean (10%), Antigua (10%), St. Lucia (8%), with Turks, Bahamas, St. Vincent, Grenada, Belize, Dominica, Montserrat, and Guyana making up the remainder. Massy United's assumed reinsurance segment, which the company exited and put into run-off in 2012, had represented up to 16% of GPW in prior years. As is the case with many of the insurance companies operating in the Caribbean, Massy United generates its business through a network of local agents, brokers and branch offices. Business Trends: Massy 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. However, several years ago Massy United had built out its assumed reinsurance segment which experienced significant losses and negatively impacted the company's overall results. Massy United's
management team has undertaken corrective action and has substantially completed the process of running off its assumed book of business to refocus its operating strategy on its core Caribbean book of business. Market Share/Market Presence: Massy 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 Massy 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 Massy United also receives guidance from the existing risk management procedures of its ultimate parent, Massy Holdings. Within Massy 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: Massy United maintains a comprehensive reinsurance program comprised of quota share, surplus and excess of loss treaties. Massy United will usually cede between 50-60% (this is now approx. 40%) of gross written premiums to reinsurers. Massy 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, R+V, PartnerRe, Transatlantic Re, Swiss Re and Munich Re among others. Massy 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: Massy United's operations have been historically profitable. Earning trends had been consistently favorable with combined ratios generally 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. In 2012 and 2013, Massy United reversed much of this negative trend and began to move towards its previous levels of profitability resulting in much improved profitability in 2014 and 2015, albeit 2015 result was somewhat less than prior year. Underwriting Results: Massy United's underwriting results have been adversely affected by the company's aforementioned assumed reinsurance segment. Combined ratios trended higher since 2008 culminating with a combined ratio of 122.8% in 2011. The 2011 results were exacerbated by Hurricane Tomas which occurred in Massy United's financial year end 2011. As Massy United began 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. In 2013, Massy United posted its first sub- 100% combined ratio since 2009, with the combined ratio improving in 2014 and 2015. Massy 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. Massy United also benefits from the ability to 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.
Investment Results: Investment income provides a stable flow of revenue for Massy United and typically provides a benefit of BB$9 and BB$11 million annually. In 2013, net investment income declined marginally due in large part to lower yields. Net investment income was relatively unchanged in 2014 but slightly declined in 2015 due to again, lower yields. Realized gains and losses have generally not been a significant component of earnings (or losses) with the exception of 2011 when Massy United realized just under BB$1 million in gains as it readjusted the composition of its investment portfolio. BALANCE SHEET STRENGTH Capitalization: Massy United maintains adequate risk-adjusted capitalization for its current risk profile and ratings when measured by Best's Capital Adequacy Ratio (BCAR). Massy United has historically produced profitable operating results and prudent management of catastrophe risk exposure has enabled the company to grow its capitalization internally. Massy 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 Massy United's reinsurance program, which limits its net retention from a single catastrophe to under 10% of capital and surplus. Liquidity: Massy 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. Massy United's risk tolerance is low as evidenced by the composition of its investment portfolio. Fixed income securities and cash and shortterm investments typically represent between 75% of invested assets with equities and other investments (including real estate) representing approximately 15% and 10% respectively. Summarized Accounts as of September 30, 2015 Data reflected within all tables of this report has been compiled from the financial statements of this company (Source: Company Financial Statement). An independent audit of the company's affairs through September 30, 2015, was conducted by PricewaterhousesCoopers SRL. US $ per Local Currency Unit.51196 = 1 Barbados Dollar (BBD) ASSETS 09/30/2015 09/30/2015 09/30/2015 BBD(000) % of total USD(000) Cash and equivalents 52,164 11.8 26,706 Long term fixed maturity investments 106,356 24.1 54,450 Equity investments 38,135 8.6 19,524 Short term investments 25,328 5.7 12,967 Mortgage loans 2,056 0.5 1,053 Invested assets 171,875 38.9 87,993 Receivables 79,627 18.0 40,766 Reinsurance recoverable 10,840 2.5 5,550 Equity in unconsolidated subsidiary 5,845 1.3 2,992 Other assets 121,740 27.5 62,326 Total assets 442,091 100.0 226,333
LIABILITIES & SURPLUS 09/30/2015 09/30/2015 09/30/2015 BBD(000) % of total USD(000) Property / Casualty reserves 98,876 22.4 50,621 Unearned premium reserves 130,865 29.6 66,998 Total policy reserves 229,741 52.0 117,618 Other liabilities 65,745 14.9 33,659 Total liabilities 295,486 66.8 151,277 Equity - common stock 8,900 2.0 4,556 Accumulated other comprehensive income 11,339 2.6 5,805 Retained earnings 83,016 18.8 42,501 Other equity 43,350 9.8 22,193 Total equity 146,605 33.2 75,056 Total liabilities & equity 442,091 100.0 226,333 STATEMENT OF INCOME 09/30/2015 09/30/2015 BBD(000) USD(000) Gross premiums written 240,174 122,959 Reins ceded 146,988 75,252 Net premiums written 93,186 47,708 Change in unearned premiums 11,264 5,767 Net premiums earned 81,922 41,941 Total fee income 25,372 12,989 Net investment income 8,286 4,242 Net realized gains/(losses) 122 62 Net unrealized gains/(losses) -682-349 Total revenue 115,020 58,886 Benefits & reserves 44,666 22,867 Operating expenses 57,255 29,312 Non-operating expenses 738 378 Total benefits & expenses 102,659 52,557 Earnings before interest & taxes (EBIT) 12,361 6,328 Equity in income of unconsolidated subsidiaries 696 356 Pre-tax income/(loss) from continuing operations 13,057 6,685
Total taxes 2,969 1,520 Net income/(loss) before minority interest 10,088 5,165 Minority interest -182-93 Net income/(loss) from continuing operations 9,906 5,071 Net income/(loss) 9,906 5,071 STATEMENT OF CHANGES IN EQUITY 09/30/2015 09/30/2015 BBD(000) USD(000) Common shares, beginning balance 8,900 4,556 Common shares, ending balance 8,900 4,556 AOCI - beginning balance 11,339 5,805 AOCI - ending balance 11,339 5,805 Other equity, beg. bal. 39,867 20,410 Other equity, misc. 3,483 1,783 Other equity, end. bal. 43,350 22,193 Retained earnings, beginning balance 107,879 55,230 Retained earnings, net income 9,906 5,071 Retained earnings, common dividends 31,000 15,871 Retained Earnings, other -3,769-1,930 Retained earnings, ending balance 83,016 42,501 Total shareholder equity 146,605 75,056 STATEMENT OF CASH FLOWS 09/30/2015 09/30/2015 BBD(000) USD(000) Net cash provided/(used) in operating activities 28,873 14,782 Net cash provided/(used) in investment activities 20,237 10,361 Net cash provided/(used) in financing activities -31,000-15,871 Total increase (decrease) in cash 18,110 9,272 Cash, beginning balance 34,054 17,434 Cash, ending balance 52,164 26,706
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. In 2014, the Neal & Massy Group undertook a rebranding initiative to create a consistent and easily identifiable corporate image. Neal & Massy became Massy Holdings Ltd and United is now Massy United Insurance. Massy 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. MANAGEMENT Leadership and administration of the company's affairs are under the direction of Howard H. Hall, Chief Executive Officer. Mr. Hall joined Massy United Insurance on August 1, 2011. CEO: Howard Hall CFO: Richard Boddy Chief Commercial Officer: Mark Sommerville Director: Michael Armstrong (Business Development, Strategy and Marketing) Manager: Sharron Alleyne-Elcock (Business Manager - Barbados) Manager: Dennis Benisar (General Manager - Trinidad) OFFICERS Manager: Heather A. Del Castilho (Reinsurance) Manager: Joann V. Estwick (Credit Controller) Manager: Lorraine Hurley (Regional ICT & Transformational) Manager: Lee-Ann Millar-Mendes (Human Resources) Manager: Tessha Myers (Financial Planning & Analyst) Manager: Carl Norris (Technical) Manager: Mark Sutherland (Finance Operations, Risk & Control) Manager: Cecile Cox (Client Relations) Manager: Ricardo Bynoe (Business Manager Regional) Manager: Deborah Downes (Underwriting) Manager: Uthra Ramnarine-Hill (Senior Claims Manager) DIRECTORS F. F. Delmas J. I. O'Connell H. H. H. Hall (Managing) P. D. Rajkumarsingh G. A. King P. G. Symmonds D. N. O'Brien (Chairman) TERRITORY Antigua, Aruba and the Dutch Caribbean, Bahamas, Barbados, Belize, British Virgin Islands, Curacao, 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 171,875 187,164 181,926 171,240 182,033 Total assets 442,091 438,860 434,898 459,108 435,183 Total liabilities 295,486 270,875 280,452 313,915 304,089 Total equity 146,605 167,985 154,446 145,193 131,094 Total capital 146,605 167,985 154,446 145,193 131,094 INCOME STATEMENT ITEMS BBD BBD BBD BBD BBD (000) (000) (000) (000) (000) Gross premiums written 240,174 231,275 231,951 201,152 225,324 Net premiums written 93,186 67,256 59,636 72,371 97,263 Net investment income 8,286 9,870 9,689 9,762 10,037 Net realized gains/(losses) 122 362 336-188 907 Net income/(loss) 9,906 13,718 10,152 14,158-9,331 LIQUIDITY RATIOS (%) Total investments to total reserves 97.5 97.3 94.9 83.6 88.7 Liquid assets to total liabilities 75.1 80.6 75.7 70.2 74.4 Total investments to total liabilities 75.8 81.7 76.8 71.2 75.6 Bonds to total reserves 46.3 46.1 46.1 34.4 38.3 PROFITABILITY RATIOS (%) Loss ratio 54.5 48.3 35.0 55.1 70.7 Expense ratio 37.6 44.4 62.0 47.1 52.2 Combined ratio 92.1 92.7 97.1 102.2 122.8 Investment income ratio 10.1 15.9 14.5 12.3 11.1 Return on assets 2.3 3.1 2.3 3.2-2.2 Return on revenues 12.1 22.1 15.2 17.9-10.3 Return on equity 6.3 8.5 6.8 10.3-6.9 LEVERAGE & DEBT RATIOS (%) Net premiums written to equity 63.6 40.0 38.6 49.8 74.2 Cash and equivalents to total assets 17.5 17.2 16.4 20.2 21.5