A.M. Best downgrades ratings of Best Re (L) Limited and Best Re Family (L) Limited

A.M. Best also has downgraded the FSR to B++ (Good) from A- (Excellent) and ICR to "bbb+" from "a-" of BEST RE FAMILY (L) Limited (BEST RE FAMILY) (Malaysia). The outlook for these ratings is stable.

The rating downgrades for BEST RE and BEST RE FAMILY reflect the change in A.M. Best's assessment of the implicit support provided by the companies' parent, Islamic Arab Insurance Co. (Salama) (United Arab Emirates).

In A.M. Best's opinion, the implicit support for BEST RE and BEST RE FAMILY by Salama has declined as evidenced by significant delays in providing a capital injection to support the low risk-adjusted capital position of BEST RE. Additionally A.M. Best views Salama's group-wide capital management as weak given the low risk-adjusted capital position of BEST RE.

BEST RE's ratings reflect its weakened level of risk-adjusted capital as a result of losses incurred from the floods in Thailand during 2011, in combination with its strong growth in premium income during the same year.

The ratings of BEST RE were placed under review with negative implications in May 2012, pending improvement in its capital position through new
business plans to reduce premium volumes over the medium term and the anticipated $50m capital injection by Salama.

A.M. Best views positively BEST RE's plan to reduce premium volumes and expects that risk-adjusted capital will have improved significantly by the end of 2012. Additionally, the company's conservative investment policy, which is focused on short-term deposits (77% of investments), and its well-rated reinsurance programme are positive for its capital position. However, following a loss of $0.3m in the first half of 2012, BEST RE's capital and surplus has declined, placing added pressure on capital adequacy.

In A.M. Best's opinion, there is potential for upward pressure on BEST RE's ratings in the short term with significant improvement in its capital position. Conversely, negative rating pressure may occur if BEST RE is not able to reduce gross written premiums in line with its plan or losses reduce the capital available to support its underwriting activities.

The ratings for BEST RE FAMILY acknowledge its status as a start-up company and its very strong risk-adjusted capitalisation. An offsetting factor is the execution risk the company faces in achieving its strategic objectives.

BEST RE FAMILY has generated gross written premiums of $28m, producing a marginal underwriting loss of $0.4m in its second year of operation, marginally below its plan. This was due to the underperformance of certain contracts that have not been renewed in 2012.

A.M. Best expects the company to produce a profit in 2012.

BEST RE FAMILY has very strong risk-adjusted capitalisation. The company was established with $10m of capital, which is more than adequate to support prospective underwriting in the short term. Additionally, BEST RE FAMILY's investment portfolio is entirely concentrated in Mudharabah deposits and cash representing low investment risk; however, 89% of deposits are held with two banks representing a concentration risk. A.M. Best views BEST RE FAMILY's reinsurance programme as adequate, providing cover on a per-person and catastrophe basis from well rated reinsurers. A.M. Best expects risk-adjusted capitalisation to decline as capital supports the significant planned growth by the company.

There is no short term upward rating pressure on the individual assessment of BEST RE FAMILY given its limited profile and status as a start-up without a record of profitable underwriting. Negative rating pressure might arise if the company is unable to meet its business plans.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: "Risk Management and the Rating Process for Insurance Companies"; "Assessing Country Risk"; "Understanding Universal BCAR"; and "Rating Members of Insurance Groups".

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure. A.M. Best Europe - Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.