S&P Revises Norwegian Bluewater Insurance Outlook to Negative

August 18, 2003

Standard & Poor’s Ratings Services announced that it has revised its outlook on Norwegian marine insurer Bluewater Insurance ASA to negative from stable. However, it affirmed its ‘BBB-‘ long-term counterparty credit and insurer financial strength ratings on the company.

“The outlook revision follows uncertainties over delays in resolving a dispute between Bluewater and Zurich International (Bermuda) Ltd. (ZIB; A+/Negative/–), a major reinsurer, for Bluewater’s already-stretched management team,” stated S&P credit analyst Rowena Potter.

S&P noted that “Bluewater’s 2002 accounts include a note relating to disputed reinsurance recoverables arising from the sale of Zurich Protector Forsikring AS (ZPF) to Bluewater at the end of 2002. Pending resolution of this dispute, Bluewater has made an extraordinary provision of about Norwegian krone (Nkr) 61 million ($8.3 million) in its 2002 accounts.”

It affirmed that “the ratings reflect Bluewater’s good but weakened capitalization, comprehensive reinsurance program, and knowledgeable and experienced management team. These factors are offset by the potential weakening of capital adequacy arising from the company’s dispute with ZIB. Further negative factors are Bluewater’s marginal but improving business position in the Norwegian marine insurance market and its status as a relatively new venture with little operating track record.

“The negative outlook reflects uncertainties over capital adequacy in the short to medium term pending resolution of the dispute over reinsurance recoverables, which adds to the challenges faced by the small management team in running a fast-growing company. Offsetting this is Standard & Poor’s expectation that Bluewater will continue to benefit, at least in the short term, from the hardening rate environment in the marine insurance sector.”

The rating agency said it expected the company’s capital adequacy to fall during 2003, “although it should remain extremely strong–even after the Nkr61 million extraordinary provision–in order to support the company’s growth.” It also doesn’t expect the capital adequacy ratio to fall below 300 percent in 2003.

S&P warned, however, that “failure to resolve the dispute with ZIB satisfactorily may cause the ratings to be lowered.” It added that it “expects Bluewater to continue to strengthen its business position without compromising profitability. Gross premiums written are expected to increase by more than 50% to about Nkr220 million in 2003. Operating performance is expected to improve, with the combined ratio falling below 105% in 2003.”

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