Insurance credit agency A.M. Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” of Puerto Rioc’s Trans-Oceanic Life Insurance Company. The outlook of the FSR remains stable.
The Long-Term ICR outlook is being revised to negative from stable based on the declining trend in operating performance when combined with the uncertainty of the current operating environment.
Collectively, the company faces significant headwinds along with a declining trend in earnings and a challenging business environment.
TOLIC’s underwriting performance weakened in 2016 and through third quarter 2017 and revenue development has trended slightly downward.
Operating performance was bolstered by investment income, which proved to be a sufficient hedge against underwriting fluctuation.
“A.M. Best believes that there could be further disruption in business operations due to the impact of the recent hurricanes as there may be a pent-up delay in the filing of claims,” the agency said. “The efficiency of revenue collection also could be challenged during the fourth quarter and possibly into 2018.”
Additionally, the company’s geographic concentration risk exposure remains a significant concern as the company’s operations are mainly confined to Puerto Rico, which has suffered a downgrade of its securities, further intensifying the country’s prolonged structural deficit.
Offsetting rating factors include TOLIC’s significant balance sheet strength, when compared to the scale of its operations.
The company’s capital adequacy ratios are categorized by A.M. Best as strongest, with net premium leverage less than one times capital.
“Over the past two years, TOLIC has reduced default risk on Puerto Rico related investments, where its current exposure is relatively small at approximately 4 percent of total invested assets. However, the company’s investment risk increased as a significant portion of its accumulated cash balance was converted to long-term securities,” A.M. Best stated.