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Earnings capacity is expected to persist within an intermediate range, albeit under pressure, reflecting underwriting profit dilution from less profitable growth. Underwriting margin compression is largely expected from premium advancement in the medical line, which exhibits high loss volatility, offsetting a largely competitive loss ratio from the rest of the portfolio. While management has put in place measures to restructure loss making accounts, in collaboration with the major cedants, underwriting margins are expected to revert to the0-4% range (FY18: 16%) registered during start-up phases.
The Positive Outlook reflects expectations of stronger risk adjusted capitalisation underpinned by a material improvement in capital scale to above USD10m over the rating horizon. The rating is likely to be upgraded if risk adjusted capitalisation, including capital scale, measures in line with expectations, while realising base case scenario impacts on earnings and liquidity.