Fitch Ratings has downgraded finite risk specialist The Imagine Group to A-minus from A. The rating agency is concerned that, by making up for lost finite reinsurance revenue with traditional property-catastrophe business, Imagine’s book could be too volatile for its capital base.
The group injected US$50 million into its Bermudian subsidiary Imagine Insurance in December last year so it could write more traditional property-catastrophe business. This, together with its 2005 earnings and a series of bank loans, brought Imagine’s underwriting capacity to US$600 million.
Donald Thorpe, senior director of insurance ratings at Fitch, believes Imagine’s diversification into more capital intensive lines, though logical given the fall in demand for finite reinsurance, could expose the company to more risk than it can handle. Eleven percent of Imagine’s portfolio is now exposed to natural catastrophes.
“It is a new and more volatile business line for them,” says Thorpe. “Any time you are in a new business line there is an element of execution risk there. They have yet to demonstrate success in the new businesses, though they have added underwriters experienced in those lines.”
Fitch believes no further ratings action against the company will be necessary in the short term and has assigned a stable outlook on the rating. “There is no expectation in either direction,” he says. Rival rating agency A.M. Best rates Imagine A-minus with a negative outlook, where it has held the rating since last year. It does not expect to alter its view of the firm for the reasons outlined by Fitch. “I don’t see us taking a rating action based on what Fitch has done,” says Peter Dickey, managing senior financial analyst at A.M. Best. “Our review of Imagine is not due until the end of this year, and I don’t see any change to be made at this time.”
A spokesman for Imagine did not return calls. The company’s CEO is former Platinum Re vice-chairman Greg Morrison, who joined the group in May this year, pending approval by the Bermudian immigration authorities.
As well as finite coverage, Imagine offers traditional property treaty reinsurance, workers’ compensation, accident and health lines, non-standard motor, reinsurance to close for Lloyd’s syndicates, and speciality lines such as professional indemnity, public and employers’ liability, and medical malpractice. Losses in these lines are not capped the way they are in finite risk contracts.
