The American Club has criticised S&P Global Ratings’ revised capital rating model after it was downgraded, despite improving financial figures.
S&P downgraded the New York-based mutual from BBB- to BB+ with a stable outlook after an assessment under the new rating model which was introduced in November last year.
The American Club has questioned the rationale behind the new rating criteria, claiming it is now being unfairly disadvantaged as a not-for-profit mutual.
“The board and its managers believe the resilient structure of the association warrants a more favourable assessment,” American Club chief executive Dorothea Ioannou said in a statement to members.
S&P’s rating report attributed the downgrade to the American Club’s weakness in its capital position, claiming that the club has “not generated sufficient underwriting earnings that would be capital accretive”.
The American Club said the new S&P rating is based on out-of-date figures from a period when the club had been hit by a fall in the investment market.
“S&P’s decision is founded on an anchor rating and assumptions applicable at a point in time dating more than 12 months ago that are no longer relevant. It is not truly reflective of the current financial position nor the trajectory of the association,” Ioannou said.
Ioannou said the American Club has recorded an 8% improvement in investment earnings as of 31 December 2023.
It has also seen premium income and tonnage increase, its loss ratio improve and said its combined ratio — which reflects technical underwriting performance — is forecast to fall below 100%, indicating a profit.
The American Club said the new rating is geared towards the commercial insurance market and no longer makes allowances for the unique structure of mutual protection and indemnity insurance and the pool claims system operated by the International Group of P&I Clubs.
“The revised modelling ignores the most unique aspect of the pooling agreement within the [International Group], equally enabling every member to pay any covered claim that may arise,” said Ioannou.
The loyalty of shipowner members to their P&I club had also not been accounted for, she suggested.
“Not-for-profit insurers may have a unique risk profile and risk management strategy, which may not be fully captured by traditional credit rating methodologies.
“While a stock-holding insurance company could find itself in the precarious position of investors unwilling to add capital, this is not a factor in a shipowners’ mutual.”
