A.M. Best Downgrades Credit Ratings of Capital Life Insurance Company Limited and Capital General Insurance Company Limited; Places Under Review With Negative Implications | Financial Buzz

A.M. Best Downgrades Credit Ratings of Capital Life Insurance Company Limited and Capital General Insurance Company Limited; Places Under Review With Negative Implications

A.M. Best has downgraded the Financial Strength Rating (FSR) to
C- (Weak) from B- (Fair) and the Long-Term Issuer Credit Rating
(Long-Term ICR) to “cc” from “bb-” of Capital Life Insurance Company
Limited (CLI). Concurrently, A.M. Best has downgraded the FSR to C++
(Marginal) from B- (Fair) and the Long-Term ICR to “b+” from “bb-” of Capital
General Insurance Company Limited (CGI). Additionally, A.M. Best has
placed these Credit Ratings (ratings) under review with negative
implications. Both companies are subsidiaries of Capital Insurance
Group Limited (CIGL) and domiciled in Papua New Guinea.

The rating downgrades of CLI follow an internal control failure relating
to medical claims processing, which has resulted in a requirement for
substantial reserve strengthening. While claims were paid to
policyholders as they came due, A.M. Best expects a material decline in
the company’s capital position for full-year 2017. Consequently, A.M.
Best expects CLI’s risk-adjusted capitalization to deteriorate to a very
weak level, as measured by Best’s Capital Adequacy Ratio (BCAR). In
addition, this control failure has weakened A.M. Best’s assessment of
the company’s enterprise risk management (ERM).

The rating downgrades of CGI also follow a revision in A.M. Best’s
assessment of the company’s ERM. While it is noted that CGI and CLI’s
businesses operate independently, and no contagion of the processing
issue seen at CLI is expected at CGI, both have a common risk
management, governance and control framework that has been deficient in
preventing a key control risk at CLI.

The under-review with negative implications status applied to CLI’s and
CGI’s ratings reflects the uncertainty that remains around the
finalization of their year-end 2017 financial positions as well as
prospective expectations. In order to resolve the under-review status,
A.M. Best expects to conduct a full assessment of the medium-term
balance sheet strength and operating performance fundamentals of CLI,
CGI and CIGL. In addition, A.M. Best will undertake a further review of
the risk management practices at CLI and CGI and consider the remedial
actions being implemented by management.

The ratings of CLI reflect its very weak balance sheet strength
assessment, as well as its strong operating performance, limited
business profile and weak ERM. CGI’s ratings reflect its strong balance
sheet strength assessment, as well as its strong operating performance,
limited business profile and weak ERM.

Ratings are communicated to rated entities prior to publication.
Unless stated otherwise, the ratings were not amended subsequent to that
communication.

This press release relates to Credit Ratings that have been published
on A.M. Best’s website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and A.M. Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating
Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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