A M Best s Rating Report United Insurance Company Limited Bridgetown, Barbados Revision Date: August 17, 2011 United Insurance Co. Ltd. has a Rating of A- (Excellent)
Non-Life Business Ultimate Parent: Neal & Massy Holdings Limited UNITED INSURANCE COMPANY LIMITED P.O. Box 1215, United Insurance Centre, Lower Broad Street, Bridgetown, BB11000, Barbados Web: www.unitedinsure.com Tel: 246-430-1900 AMB#: 86916 Ultimate Parent#: 052292 Fax: 246-436-7573 Report Revision Date: 08/17/2011 BEST'S FINANCIAL STRENGTH RATING Based on our opinion of the company's Financial Strength, it is assigned a Best's Financial Strength Rating of A- (Excellent). The company's Financial Size Category is Class VII. RATING RATIONALE Rating Rationale: The rating reflects United Insurance Company Limited's (United) solid capitalization, favorable underwriting performance and leading regional market profile. Partially offsetting these strengths are the increasingly competitive regional markets in which United operates, the company's reliance on reinsurance as a catastrophe risk mitigation strategy and lack of profitability from its reinsurance segment. United has reported consistent operating profits over the past several years as a result of prudent underwriting and conservative risk management strategies. United has been able to significantly enhance its capitalization by retention of earnings, given its parent's minimal dividend requirements. United is a leading insurer in several of its markets and enjoys excellent brand recognition throughout its regional operating territories. Catastrophe risk is mitigated by United's conservative reinsurance program, which has protected the company's surplus from catastrophic losses despite increased hurricane activity in the region. Rising reinsurance costs have impacted earnings, and the increased frequency of catastrophic events presents a substantial level of risk exposure to United and other insurers in the region. The increased costs associated with the company's heavy reliance on reinsurance are somewhat mitigated by the utilization of United's captive reinsurer for lower cat layers. Regional insurance markets are becoming increasingly competitive, and United's business retention and market share will continue to be challenged by other local and regional insurers. In addition, United's risk profile has changed in recent years through its assumption of European and Asian exposure as part of its reinsurance segment. While this affords United some geographic diversification in its operations, the company is accepting risk in new markets. A.M. Best will continue to closely monitor United's experience with these treaties for any adverse developments. Best's Financial Strength Rating: A- Outlook: Stable FIVE YEAR RATING HISTORY Date Best s FSR July 5, 2011 A- May 6, 2010 A- February 4, 2009 A- November 1, 2007 A- August 16, 2006 A- BUSINESS REVIEW United Insurance Company Limited (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. Neal & Massy Holdings Ltd. (N&M), a Trinidad-based conglomerate, owns 97% of United's immediate parent Barbados Shipping & Trading Company Limited, which in turn owns 100% of United. N&M, one of the largest entities in Trinidad, is publicly traded on the Barbados and Trinidad stock exchanges. Page 2
United writes all major non-life classes of insurance, with its property segment accounting for 48% of the gross premium written (GPW). The company's automobile segment and its accident and health segment represent 17% each, followed by inward reinsurance (16%) and marine (2%). United is licensed in Antigua, Aruba and the Netherlands Antilles, 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 accounts for 31% of GPW, followed by Trinidad & Tobago and Antigua each with 10%, Curacao (7%), St. Lucia (6%), with Turks, Bahamas, St. Vincent, Grenada, Belize, Dominica, Montserrat, Guyana and Aruba making up the remaining (20%). United's reinsurance segment represents 16% of GPW, which is not allocated by geography. As is the case with many of the insurance companies operating in the Caribbean, United generates its business through a network of local agents, brokers and branch offices. FINANCIAL PERFORMANCE United's operations have been historically profitable. Earning trends had been consistently favorable in recent years with combined ratios below 100% despite increased hurricane events in the Caribbean. However, the company's loss and expense ratios have increased in recent years pushing its combined ratio to around 95% in 2009 and over 100% in 2010, its highest level in many years. United's historically favorable loss experience 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. United also benefits from the ability to easily effect rate strengthening when necessary in most of its markets. The company's accident and health segment along with its auto segment are the main contributors to earnings, while its inward reinsurance operations continue to generate substantial losses. Consistent levels of investment income have also contributed significantly to earnings in recent years. CAPITALIZATION United maintains more than adequate risk-adjusted capitalization for its current business profile when measured by Best's Capital Adequacy Ratio (BCAR). Consistently profitable operating results and prudent management of catastrophe risk exposure have enabled the company to grow its capitalization internally as evidenced by consistent additions to capital and surplus in recent years. United's growing capital position and prudent retention of premiums have also resulted in improvement of its underwriting leverage in recent years. Capitalization is also protected by United's conservative reinsurance program, which limits its net retention from a single catastrophe to under 10% of capital and surplus. LIQUIDITY 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. United's risk tolerance is low as evidenced by the composition of its investment portfolio. Fixed income securities and cash and short-term investments represent approximately 85% of invested assets with real estate and equities representing approximately 9% and 2%, respectively, mortgages 2% and other investments comprising the remaining 2%. Source of Information: Audited Financial Statement Summarized Accounts as of September 30, 2009 US $ per Local Currency Unit.5128 = 1 Barbados Dollar (BBD) ASSETS 09/30/2009 09/30/2009 09/30/2009 BBD(000) % of total USD(000) Cash and equivalents 61,347 16.3 31,459 Long term fixed maturity investments 99,632 26.5 51,091 Other investments 37,854 10.1 19,412 Mortgage loans 3,562 1.0 1,827 Real estate owned 20,449 5.4 10,486 Invested assets 161,497 42.9 82,816 Receivables 72,514 19.3 37,185 Reinsurance recoverable 25,810 6.9 13,235 Goodwill & other intangibles 254 130 Other assets 55,318 14.7 28,367 Total assets 376,740 100.0 193,192 Page 3
LIABILITIES & SURPLUS 09/30/2009 09/30/2009 09/30/2009 BBD(000) % of total USD(000) Property / Casualty reserves 119,659 31.8 61,361 Unearned premium reserves 83,532 22.2 42,835 Total policy reserves 203,191 53.9 104,196 Other liabilities 38,028 10.1 19,501 Total liabilities 241,219 64.0 123,697 Equity - common stock 8,900 2.4 4,564 Accumulated other comprehensive income 25,161 6.7 12,903 Retained earnings 86,381 22.9 44,296 Other equity 15,079 4.0 7,733 Total equity 135,521 36.0 69,495 Total liabilities & equity 376,740 100.0 193,192 STATEMENT OF INCOME 09/30/2009 09/30/2009 BBD(000) USD(000) Gross premiums written 201,464 103,311 Reins ceded 105,118 53,905 Net premiums written 96,346 49,406 Change in unearned premiums 1,103 566 Net premiums earned 95,243 48,841 Total fee income 18,429 9,450 Net investment income 9,885 5,069 Net unrealized gains/(losses) -1,153-591 Other revenue 515 264 Non-operating revenue 190 97 Total revenue 123,109 63,130 Benefits & reserves 59,899 30,716 Operating expenses 53,204 27,283 Non-operating expenses 284 146 Total benefits & expenses 113,387 58,145 Earnings before interest & taxes (EBIT) 9,722 4,985 Equity in income of unconsolidated subsidiaries 600 308 Pre-tax income/(loss) from continuing operations 10,322 5,293 Total taxes -814-417 Net income/(loss) before minority interest 11,136 5,711 Minority interest -40-21 Net income/(loss) from continuing operations 11,096 5,690 Net income/(loss) 11,096 5,690 Page 4
STATEMENT OF CHANGES IN EQUITY 09/30/2009 09/30/2009 BBD(000) USD(000) Common shares, beginning balance 8,900 4,564 Common shares, ending balance 8,900 4,564 AOCI - beginning balance 22,944 11,766 AOCI - change in unrealized gains/losses - other 2,217 1,137 AOCI - ending balance 25,161 12,903 Other equity, beg. bal. 15,039 7,712 Other equity, misc. 40 21 Other equity, end. bal. 15,079 7,733 Retained earnings, beginning balance 85,002 43,589 Retained earnings, net income 11,096 5,690 Retained earnings, common dividends 7,500 3,846 Retained earnings, repurchase of shares 2,217 1,137 Retained earnings, ending balance 86,381 44,296 Total shareholder equity 135,521 69,495 STATEMENT OF CASH FLOWS 09/30/2009 09/30/2009 BBD(000) USD(000) Net cash provided/(used) in operating activities 24,358 12,491 Net cash provided/(used) in investment activities -19,636-10,069 Net cash provided/(used) in financing activities -7,500-3,846 Total increase (decrease) in cash -2,778-1,425 Cash, beginning balance 27,151 13,923 Cash, ending balance 24,373 12,498 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 97% of United's immediate parent (BS&T), which in turn owns 100% of United. 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 Havergal A. Toppin, Managing Director. Mr. Toppin has been employed with United Insurance since the company's inception in 1976. Officers: Director and General Manager, David A. C. Alleyne; Director and Financial Controller, Harcourt A. Lewis (Financial); Managing Director, Havergal A. Toppin; Managers, Robert R. Branch (Systems), Heather A. Del Castilho (Reinsurance), Joann V. Estwick (Accounting), Christopher N. S. Grosvenor (Claims), Lee-Ann Millar-Mendes (Human Resources), Carl Norris (Underwriting); Regional Manager, Cecile Cox. Directors: D. A. Alleyne, D. A. Blackman, R. G. Cave, G. A. King (Chairman), H. A. Lewis, D. N. O'Brien, P. G. Symmonds, H. A. Toppin, Gervase Warner. Page 5
TERRITORY Antigua, Aruba and the Netherlands Antilles, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Montserrat, St. Lucia, St. Vincent and the Grenadines, Turks & Caicos and Trinidad & Tobago. REINSURANCE United maintains a comprehensive reinsurance program comprised of several quota share, surplus and excess of loss treaties. For the fiscal year ending September 30, 2010, United ceded approximately 58% of gross written premiums to reinsurers. All primary insurance companies doing business in the region, including United, 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, QBE, Transatlantic Re, Swiss Re and Munich Re among others. United utilizes its St. Lucia-domiciled captive reinsurance company, United Re, to alleviate the increasing cost of reinsurance on the first layers of its reinsurance program. BALANCE SHEET ITEMS BBD BBD BBD BBD BBD (000) (000) (000) (000) (000) Invested assets 161,497 138,609 123,083 112,249 103,341 Total assets 376,740 375,912 329,968 288,027 233,614 Total liabilities 241,219 244,027 214,265 181,326 144,175 Total equity 135,521 131,885 115,703 106,701 89,439 Total capital 135,521 131,885 115,703 106,701 89,439 INCOME STATEMENT ITEMS BBD BBD BBD BBD BBD (000) (000) (000) (000) (000) Gross premiums written 201,464 201,179 179,234 181,940 136,583 Net premiums written 96,346 93,479 77,520 64,243 54,099 Net investment income 9,885 9,154 9,115 7,675 6,528 Net realized gains/(losses) 55 36 Net income/(loss) 11,096 18,228 20,158 17,744 15,916 LIQUIDITY RATIOS (%) Total investments to total reserves 109.7 93.0 107.6 121.8 110.2 Liquid assets to total liabilities 66.7 57.1 68.7 74.3 69.3 Total investments to total liabilities 92.4 81.2 92.5 98.1 97.5 Bonds to total reserves 49.0 37.5 39.2 47.3 49.1 PROFITABILITY RATIOS (%) Loss ratio 62.9 57.3 58.7 54.0 55.6 Expense ratio 36.3 29.5 27.2 27.1 28.9 Combined ratio 99.2 86.8 85.9 81.1 84.5 Investment income ratio 10.4 10.2 12.7 12.7 12.6 Return on assets 3.0 5.2 6.5 6.8 7.1 Return on revenues 11.7 20.3 28.1 29.4 30.6 Return on equity 8.3 14.7 18.1 18.1 21.5 LEVERAGE & DEBT RATIOS (%) Net premiums written to equity 71.1 70.9 67.0 60.2 60.5 Cash and equivalents to total assets 16.3 15.8 22.7 22.8 16.0 Page 6