Global Indemnity Reinsurance Company, Ltd., a unit of Global Indemnity Plc GBLI, recently received rating affirmation from A.M Best. The credit rating giant has reaffirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” for the company’s unit, Global Indemnity Re and its U.S.-based subsidiaries. The parent company also received Long-Term ICR of “bbb” from the credit rating agency.
Moreover, A.M Best affirmed Long-Term ICR of “bbb-” on Global Indemnity’s $100 million 7.75% subordinated notes offering that are due in 2045, “bbb” on senior unsecured debt, “bbb-” on subordinated unsecured debt and “bb+” on the preferred stock. The outlook for the ratings is stable.
These ratings reflect Global Indemnity Re’s strong capitalization, solid historical underwriting results as well as its efficient risk management. The ratings also acknowledge the strong performance of the company and its six U.S subsidiaries.
The rating agency is optimistic about Global Indemnity Re’s diverse business portfolio, multi-distribution channels and well-established relationships with agencies/brokers. In addition, Global Indemnity Re boasts a strong capital position that drives solid premium growth. Global Indemnity Re’s financial flexibility is supported by its parent company and its access to huge commercial and personal lines business through its subsidiaries position it well in the U.S reinsurance market.
Coming to its inorganic growth story, the acquisition of American Reliable Insurance Company provided Global Indemnity Re immediate access to more than $250 million specialty personal lines and agricultural business, which almost doubled its U.S. writings. The buyout was a perfect fit for the acquirer as the deal caused minimal distributional overlap to the existing business. American Reliable also facilitated the company in returning additional risk-adjusted capital to its existing business.
However, competitive pricing pressures in the U.S reinsurance market, low investment yields, the recent decline in equity and poor control on expenses raise concerns and might lead to a rating downgrade.
The ratings also reflect that the corrective actions taken by Global Indemnity Re to combat the aforesaid headwinds. Premium adequacy and underwriting profitability remain two major areas of concern for management. The company has been witnessing premium contraction since 2012 due to the discontinuation of unsatisfactory agency relationships and the elimination of certain unprofitable classes of business.
The rating agency also notes that high expenses incurred by Global Indemnity Re is affecting the quality of business sourced though its select distribution partners. Continuous reinvestment in the fixed income – high quality securities has also been another strategic move of the company.
GLOBAL INDEMNTY Price
Stocks that Warrant a Look
Investors may also consider other property and casualty players like Chubb Ltd CB, CNA Financial Corporation CNA, Everest Re Group Ltd RE and First American Financial Corporation FAF . All of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CNA Financial delivered positive surprises in three of the last four quarters but with an average miss of 18.69%.
Chubb beat expectations in three of the last four quarters with an average beat of 4.06%
Everest Re delivered positive surprises in three of the last four quarters with an average beat of 25.64%.
However, First American Financial beat estimates in all the trailing last four quarters with an average beat of 14.32%
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