28 February 2019Analysis

Nestlé's reinsurance captive withdraws from AM Best ratings

Intercona Re, the captive reinsurer of transnational food and drink company Nestlé has requested to no longer participate in AM Best's rating process, and the ratings agency has subsequently withdrawn the company's ratings.

Intercona Re provides the first layer of reinsurance protection on the group’s global insurance programme, providing a diverse underwriting portfolio by geography and product. It is a key part of Nestlé's risk management framework, and assists with the mitigation of risk exposure and loss prevention.

At the same time of its withdrawal, Nestlé's captive had its financial strength rating of A+ (Superior) affirmed by AM Best, with a stable outlook.

The ratings reflect Intercona’s balance sheet strength, which were categorised as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.  Intercona Re also benefits from the stronger credit profile of parent company Nestlé.

Intercona’s balance sheet strength is underpinned by the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio. The balance sheet strength assessment is further supported by adequate liquidity and capital buffers, built up through the retention of earnings within its equalisation and fluctuation reserves.

AM Best highlighted Intercona Re's strong operating performance and ability to withstand volatility from large loss events is evidenced through a five-year average (2013-2017) combined ratio of 90.0 percent.

"Intercona’s disciplined underwriting enabled the company to report pre-tax profits of CHF 77.1 million (excluding movement of equalisation and fluctuation reserves) in 2017, following a financial year loss of CHF 49.2 million in 2016, primarily driven by a natural catastrophe loss. AM Best’s expectation for the company’s audited 2018 results is for continued profit and improved underwriting performance," the ratings agency stated.