‘Weakening underwriting’ prompts AM Best to downgrade MS Amlin AG outlook to negative

Ratings agency  AM Best has downgraded the long-term issuer credit rating outlook of  MS Amlin AG (Switzerland) to negative from stable, citing “weakening underwriting performance” in recent years.

The agency explained that the revision of outlook “reflects pressure on MS Amlin AG’s adequate operating performance assessment, following weakening underwriting performance since 2017”.

Best warned that MS Amlin is expected to report a significant loss after tax for 2021, reflecting a combined ratio well in excess of 100%, only partially offset by investment income. The underwriting loss is mainly driven by elevated natural catastrophe losses and adverse development on the company’s COVID-19 and non-catastrophe reserves.

It also noted that the company is likely to report another negative double-digit return-on-equity ratios (ROE) in 2021.

MS Amlin AG is said to have implemented a number of corrective actions in 2021 and 2022 to strengthen underwriting performance.

Currently, AM Best maintains a long-term ICR of “a+” (Excellent) and financial strength rating (FSR) of A (Excellent) of MS Amlin AG, but warned that should the remedial actions fail to translate into sustainable underwriting profitability, a downgrade of the long-term ICR is likely.

MS Amlin AG is a mid-tier reinsurer operating in Bermuda, Zurich and the US, with a market position and brand benefiting from the support of its ultimate parent MS&AD Insurance Group Holdings.

The company's operating performance has been volatile in recent years. Poor underwriting performance over the period 2017-2021 has highlighted weaknesses in the company’s underwriting and reserving risk management capabilities.

Although the company has significantly reduced its catastrophe exposures in recent years, product risk remains elevated, exposing the company to volatility in earnings and risk-adjusted capitalisation, Best noted. Further reductions in catastrophe exposures are expected.

AM Best hopes MS Amlin AG’s ERM will benefit from changes to its senior management team, including the appointment of a new chief executive officer, and remedial actions focusing on processes and controls for underwriting and reserving activities.

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