S&P: Bahrain-Based Trust International Insurance & Reinsurance Co. Ratings Affirmed At 'A-'; Outlook Stable
The affirmation reflects our view that Trust Re's risk-based capital will remain extremely strong and support the company's growth plans, through profitable technical results, as well as retained earnings, while its business risk profile remains at least satisfactory.
We view Trust Re's financial risk profile as strong, which is supported by very strong capital and earnings. In 2015, Trust Re's gross premiums increased by 5.1% to US$475.9 million from US$452.6 million in 2014. At the same time, Trust Re's shareholders' equity base increased by 11.5% to US$429.6 million from US$385.2 million. We expect that Trust Re's capital adequacy will be maintained at the 'AAA' level over 2016-2018 through profit generation and retention, to support the company's growth ambitions. We expect that the company's gross premium income will grow at a similar level in 2016 before we see some more moderate growth of around 10% per year in 2017 and 2018. The company's risk position remains moderate, owing to relatively high gross exposure to catastrophe risk in markets with less developed catastrophe modelling.
Trust Re's exposure to country and industry risks varies in each of the markets where it operates, but we consider the overall insurance industry and country risk as intermediate, mostly reflecting its diversified premium base by geography. Although small by global standards, Trust Re is an established Bahrain-based reinsurer with a well-diversified premium income that is generated from a number of geographic regions, including the wider Middle East, Central and Eastern Europe Asia, and Africa. In 2015, Trust Re's combined (loss and expense) ratio improved to 98.0% from 100.2% in 2014. Although pricing pressure in global reinsurance markets remains high, we anticipate that the company's combined ratio will remain around 98% in 2016 with a slight improvement in the following years.
We have revised our assessment of Trust Re's enterprise risk management (ERM) to adequate with strong risk controls from adequate. We view controls for the company's main risks, which include underwriting, reserving, and credit risks as positive. In addition, we view ERM as highly important to the rating, reflecting the large geographic spread, and the relatively high exposure to catastrophe risk on a gross basis.
We rate Trust Re higher than our sovereign credit rating on the country of its domicile, Bahrain (BB/Stable/B), as the company has only a minimal asset and risk exposure to the country.
We consider Trust's parent, Nest Investments (Holdings) Ltd., to be an investment holding company. It does not pose any material risk to Trust Re in our view.
The stable outlook reflects our view that Trust Re will maintain its extremely strong capital adequacy over the next two years, thanks to profitable operating performance and earnings retention.
We may consider a negative rating action if the company's risk-based capital adequacy deteriorated and persistently remained below an extremely strong level, which could result from strong premium growth, weak underwriting performance, or the requirement to upstream significant dividends to the parent.
Although we view a positive rating action as unlikely at this stage, we could take a positive rating action if Trust Re shows sustained outperformance of its peers, in addition to a substantial increase in controlled distribution.