The American Club has been downgraded by S&P from BBB- to BB+ with a stable outlook in its latest assessment. This follows a newly implemented risk-based capital model for rating insurers and reinsurers which was introduced in November last year by the credit rating agency.

Dorothea Ioannou, Chief Executive of the American Club has questioned the rationale behind this action in a circular released to Members on the 1st February. The circular goes on to suggest that the new model may not be appropriate for unique not for profit, mutual insurers such as the American Club.

According to S&Ps published report the main reason for the downgrade was the Club’s weakness in its capital position with the Club apparently not generating “sufficient underwriting earnings that would be capital accretive.”

However, the Club has responded to this by stating that the decision is founded on an anchor rating and assumptions dating a time more than 12 months ago “that are no longer relevant”.  They also state that the current financial position is much stronger as a result of:

  • A consistently decreasing combined loss ratio over the past 3 years;
  • A rebound in investment returns as of December 31, 2023 to a positive 8%;
  • Consistent rectification of technical deficiencies which are innate to the structure of the mutual;
  • Year on year rising tonnage and premium reflective of the high loyalty factor recognized by the rating agency in this and past assessments.

Following detailed analysis of the agency’s definition of the context and purpose of the rating the Club went on to state that they believe that the rating is “neither “forward looking” nor reflective of the Association’s “capacity and willingness to meet its financial commitments as they come due””.

A key assertion from the Circular is that the new rating model is geared towards the commercial insurance market with it ignoring the unique structure of mutual P&I insurers and the pool claims system as operated by the International Group.

There were also comments by the Club about the timing of the announcement having a potentially harmful impact on the Club’s renewal performance.

 It remains to be seen if this new model will have an impact on other Clubs going forward.