Assurance Society Inc. (ALAS) has won affirmation from rating agency, Standard & Poor's (S&P), of its `AA' (double-A) claims paying ability and issuer credit ratings.

The ratings are based on ALAS' superior capitalisation, excellent underwriting operating results and strong market position. S&P said future performance may be impacted by competitive pressures within ALAS' chosen niche.

But S&P forecast: "As competition heats up, ALAS will continue to be challenged to retain its current policyholder base in this competitive environment without affecting its balance sheet strength.'' ALAS is a leader among attorneys' liability writers. Their client list reads like a virtual `Who's who' in the legal world, and their business is almost always renewed.

S&P said ALAS is operating in a niche of the insurance industry that is becoming increasingly competitive in recent year, driving down ALAS' margins and making it increasingly difficult for ALAS to grow its book of business. To counter competition, ALAS was said to offer renewing policyholders a premium credit, to reduce the cost of their insurance.

S&P said ALAS was extremely well capitalised with a S&P capital adequacy ratio in excess of 360 percent. They expect a continuation of conservative capitalisation.

ALAS' profitability, said S&P, has been extremely strong, with return on assets averaging 4.3 percent over the past five years, and return on revenues averaging 35.5 percent, including realised capital gains.

But for the year to last November 30, results were significantly down, as a result of the 16 percent decrease in pricing and reserve strengthening. Return on revenue of 12.3 percent and return on assets of 1.5 percent were lower than ALAS' norm, but still better than the industry average.

Combined ratios have been at or below 100 percent for the past five years, which S&P recognised as exceptional for a long tail writer. They predicted return on revenue to fall to the 20 percent area, which is supportive of the current rating. The rating agency noted that almost all of the company's premiums are in lawyers professional liability insurance.

And they said that most normal sources of financial flexibility may not be available to ALAS, but the company has cultivated support in the reinsurance community. All issued policies include a provision for retrospective premium calls for up to 20 percent of the annual premium, which may be within four years after the close of each fiscal year.

The call provisions, said S&P, gives the company added financial flexibility.

The expectations of the rating agency include: No significant growth in the top line, but the policyholder base should remain stable; Continued strong earnings results, with a combined ratio in the 95 to 100 percent range, and minimal surplus growth as ALAS returns its earnings to its policyholders in the form of premium credits; and Return on revenue to fall to the 20 percent area.