AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "a-" of Argus Insurance Company Limited (Argus Insurance) and Bermuda Life Insurance Company Limited (Bermuda Life). Both companies are subsidiaries of Argus Group Holdings Limited (Argus Group) [BSE:AGH.BH]. Concurrently, AM Best has affirmed the Long-Term ICR of Argus Group at "bbb-". The outlook for these Credit Ratings (ratings) is stable. All companies are domiciled in Hamilton, Bermuda.
The ratings reflect Argus Group’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.
Argus Group’s operating performance in fiscal year-end 2019 (March 31, 2019) improved significantly compared with the prior year reported losses in which the company had a large write-off of non-performing assets. The company is focused on reducing its exposure to illiquid assets and redeploying capital into high quality and marketable securities to increase liquidity and add financial flexibility. Argus reported favorable earnings through the second quarter (Sept. 30, 2019) in its health division, but these were offset by losses from Hurricane Humberto that affected property/casualty lines. The positive earnings have contributed to the company’s solid risk-adjusted capitalization. AM Best anticipates that the Argus Group will continue to reduce its level of asset risk from its property holdings, and prudently manage its catastrophe risk exposure to maintain its strongest level of balance sheet strength assessment over the medium term.
The challenges for the company involve premium development within Bermuda and extending its reach into other markets. Argus underwrites approximately a third of the health insurance market in Bermuda; however, the country has limited growth potential and poses concentration risk. Argus’ health segment contributes over 70% of net premiums.
Furthermore, the additional health reform policy changes significantly affect the funding dynamics within the health care insurance market. Changes in funding Bermuda’s only hospital took effect June 1, 2019 in what is deemed a first phase of the island nation’s health reform. The current fee-for-service payment model, funded through the standard premium rate, has been replaced by a set grant paid directly by the Bermuda government and funded in part through an increase in the Mutual Reinsurance Fund (MRF). The change in the funding approach will reduce the premiums retained by Argus by the amount of the increase in the MRF. The corresponding claims will now be retained by the Bermuda Hospital Board. The details and the timing of a next phase of reform is uncertain at this time.
AM Best acknowledges Argus’ drive to expand and diversify premium and earnings. Over the last several years, geographic diversification has increased through the company's P/C segment's growing presence in Malta and Gibraltar.
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