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AM Best Withdraws Credit Ratings of TM hf.

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AM Best has maintained the under review with developing implication status for the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of bbb+ TM hf. (TM) (Iceland). Concurrently, AM Best has withdrawn these Credit Ratings (ratings) as the company has requested to no longer participate in AM Bests interactive rating process.

The ratings reflect TMs balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

TMs risk-adjusted capitalization, as measured by Bests Capital Adequacy Ratio (BCAR), was assessed as strongest in 2019 and benefits from a successfully concluded share capital offering of ISK 3 billion at year-end 2019. The issued capital was used as part of the purchase price of ISK 9.6 billion for the acquisition of Lykill fj¡rm¶gnun hf. (Lykill), an Icelandic lending and financing company, which was finalized in first-quarter 2020.

The companys historical good level of earnings, as demonstrated by a five-year weighted average return on equity of 16% (2015-2019), have been supported predominantly by strong investment income. AM Best expects prospective operating performance to remain adequate, albeit subject to volatility as a result of the companys exposure to the financial system risk of Iceland, and in the short term due to financial market volatility associated with the COVID-19 pandemic. In 2019, TM reported a weaker operating result relative to its performance record over the past five years (2015-2019). The company reported a net investment return including gains of 8.3% in 2019, compared with a five-year weighted average of 10.2%. The company also reported a weak technical result, with a combined ratio (as calculated by AM Best) of 103.4% in 2019, compared with the five-year weighted average of 102.5%; this was the result of a number of large claims in TMs marine book reflecting large losses and reserve strengthening of past claims.

TM benefits from a good market position and expertise in the Icelandic commercial and public insurance sector. However, the companys business profile assessment is somewhat constrained by its geographic concentration to Icelands relatively small insurance market.

The under review with developing implications status reflects the complex nature of TMs recent acquisition of Lykill, with potential financial and operational benefits and disadvantages on rating fundamentals, which AM Best is not able to assess at this point.

This press release relates to Credit Ratings that have been published on AM Bests 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 AM Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Bests Credit Ratings. For information on the proper media use of Bests Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Bests Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Konstantin Langowski

Financial Analyst

+31 20 308 5431

[email protected]

Dr. Angela Yeo

Senior Director, Analytics

+31 20 308 5421

[email protected]

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Jim Peavy

Director, Public Relations

+1 908 439 2200, ext. 5644

[email protected]