AM Best affirms RVI Guaranty ratings

14-09-2018

AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit ratings of “a-” of Bermuda-based RVI Guaranty and its subsidiary, RVI, America Insurance Company.

The outlook of these credit ratings is stable. The ratings reflect RVI’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

According to the rating agency RVI’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is currently at the strongest level. The company has very low financial flexibility despite having obtained a $15 million line of credit in 2018. RVI started paying dividends to its shareholders in 2011; in recent years, its dividend payout is approximately equal to its annual net income, which has led to no increase in surplus. The company’s BCAR level, conservative investment portfolio and strong liquidity position provide support to the balance sheet assessment of very strong.

AM Best stated that RVI’s adequate operating performance assessment is based on its stable long-term earnings, and low historical loss and combined ratios. Earnings have been driven primarily by its controlled risk exposure and stable net premium written. Combined ratio in 2017, however, exceeded 100 percent due to the surge in the loss ratio, which was caused by a spike in the loss reserves as a result of the soft market in certain aircraft segments.

AM Best added that RVI’s limited business profile assessment is driven by its narrow line of business and high product risk. Despite the company’s leading market position and little competition in the residual value insurance sector, its product risk is highly correlated with the performance and cyclicality of the broader economy. The company typically has low frequency, high severity claims. RVI’s client and premium concentration is high; however, this is offset partially by its high client retention rate. The company continues to expand its client base and is developing business opportunities in China.

In addition the rating agency said that RVI’s overall ERM assessment is appropriate, as the company has a formal ERM process that is commensurate with its business size, nature and complexity. The company’s risk assessment capability is aligned, in general, with its risk profile. However, its data warehouse has some data issues the management committed to resolve in 2018.

RVI’s loss reserves have increased significantly in the past two years due to the decline in the market values of corporate jets and 50-seat regional aircraft, which also affected the company’s 2017 operating performance. The ratings and/or outlooks will likely be impacted negatively if the aircraft-related soft market conditions continue, and there is further adverse development of the company’s loss reserves and operating performance.

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