INSURANCE ratings agency AM Best has affirmed the financial strength and credit ratings of Jamaica International Insurance Company (JIIC) as good (B++) and adequate (“bbb”) respectively.

But the outlook for both is negative, said the New York-based ratings agency.

The affirmations reflect JIIC’s strong market profile, continued adequate capitalisation and financial flexibility, reported AM Best; attributing those positives to the insurer’s support from parent company GraceKennedy. Grace is one of the region’s top conglomerates.

However, the ratings agency said it gave JIIC a negative outlook based on the general insurance company’s reduced investment income levels due to lower interest rates as a result of the Jamaica Debt Exchange.

“In the past, JIIC’s investment income had produced positive overall earnings and consistently mitigated underwriting losses,” it said.

While it is encouraged by “the early success” of JIIC’s management strategies to improve underwriting performance and combat the reduction in investment income – which resulted in an operating profit in 2011- AM Best remains uncertain as to the sustainability of the results given the current challenges facing the Jamaican economy and insurance market.

JIIC is, however, optimistic that its strategy will allow it to continue to perform well in its core insurance business.

“We think the current path is sustainable because we know the changes that we have made are not one-off adjustments, but fundamental restructuring of underwriting and internal cost structures on a sustainable basis,” said JIIC Managing Director Andrew Levy, adding that the company should also benefit from the consolidation of industry players Globe Insurance and West Indies Alliance that has made competition “smaller than it was”.

Key rating factors that could lead to a stable outlook include improved, sustainable underwriting results, an improvement in JIIC’s risk-based capitalisation or an upgrade in Jamaica’s country risk tier, the ratings agency said. Negative rating factors would include deterioration in JIIC’s risk-based capitalisation, a decline in its operating performance or further weakening of the Jamaican macroeconomic environment.

JIIC reported underwriting profit of $43 million for the year ending December 2011, a turnaround from an underwriting loss of $154 million the year prior. Levy confidently said 2012 will be another positive year for JIIC.

“What they (AM Best) are saying is that they have recognised (JIIC’s results) and they want to see another year go by of the same kind of results,” said Levy. “We are three quarters of the way through 2012 and we know that we are going to provide another good year of performance financially.”

Levy also downplayed AM Best’s concerns with JIIC’s “significant exposure to catastrophic events” and “costly reinsurance programme to protect its earnings and surplus”.

“A catastrophe would increase your claims cost in the year beyond what you expect but you get the majority of that back from the reinsurers,” Levy said.