AM Best Revises Outlooks to Negative for Summit Insurance Company Limited

AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Summit Insurance Company Limited (Summit) (Nassau, Bahamas).

These Credit Ratings (ratings) reflect Summit’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

The negative outlooks reflect the decline in Summit’s operating performance results over the past several years. Operating metrics have deteriorated from levels that supported the company’s strong assessment level to what is more in line with an adequate assessment level when compared with Caribbean peers. This trend has taken place over multiple years with Hurricane Dorian in 2019 as an approximate inflection point. Underwriting pressure post-Dorian is reflective of the operating environment in the Bahamas, where reinsurance dependence is very high and primary market pricing has been historically soft.

While the Caribbean market is correcting and providing Summit and its peers opportunities for material rate increases and gross premium growth, this shift was driven by reinsurance market hardening, which will limit opportunities for both net premium and profit growth. Summit’s management has taken actions toward restoring historical operating performance through a combination of expense reduction initiatives and rate increases.

However, it remains uncertain if results will recover to levels that fully support a strong operating performance assessment. High geographic concentration and competitive pressures also are reflected in the company’s limited business profile assessment, which also reflects high economic and financial system risk and the moderate political risk of the Bahamas.

Summit’s balance sheet strength is assessed at the strongest level, based on its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), in addition to its conservative investment portfolio predominantly composed of cash and short-term assets, and the company’s utilization of quality reinsurers to reduce its net exposure to natural catastrophes and especially wind events. The organic growth of surplus over the years has been achieved through favorable earnings, but limited by shareholder dividends. AM Best expects the company’s risk-adjusted capitalization to moderate over the near term due to premium growth in excess of equity growth, and higher catastrophe probable maximum losses from higher reinsurance retentions. However, capitalization is expected to remain supportive of the company’s strongest level balance sheet strength assessment.

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