A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of “a-” of Best Meridian Insurance Company (BMIC) (Miami, FL). Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and ICR of “bbb+” of Best Meridian International Insurance Company SPC (BMIIC) (Cayman Islands). The outlook for these ratings is stable. The revised outlook for BMIC reflects a significant increase in its exposure to commercial mortgage loans recorded over the last two years. Also of note is the concentration of these loans in Florida and the relatively high allocation to real estate linked assets relative to surplus. While A.M. Best recognizes the strategy to diversify away from fixed income investments to improve investment returns, BMIC’s entry into the commercial mortgage market is relatively new. Thus, it will take some time for A.M. Best to assess the longer-term performance of the portfolio given its high exposure. Other negative rating factors include a sharp increase in BMIC’s assumed premiums in 2012 and geographic concentration in certain Latin American companies where there is financial and political instability. Despite the revised outlook, the ratings of BMIC continue to reflect its well-established marketing presence and cultural knowledge of Latin American countries, its continued trend of profitable operating results in core lines of business and its favorable risk-adjusted capitalization. The ratings of BMIIC are based upon its consistent profitability, net premium growth, adequate level of risk-adjusted capitalization and a demonstrated commitment by the parent company, BMI Financial Group, Inc. Partially offsetting these strengths is the high level of deferred acquisition costs reflecting new business growth and the limited financial resources of its ultimate parent. Key rating factors that could result in BMIC’s outlook returning to stable include sustainable net premium growth levels while maintaining profitable operations, continued high risk-adjusted capitalization and acceptable performance of its commercial mortgages.
Key rating factors that may result in negative rating actions include increased exposure to mortgage loans or significant non-performance of the company’s newly acquired mortgage loans, a decline in operating earnings, disruption in its business model in key international markets or a significant decrease in risk-adjusted capitalization.The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.