Ratings Recap: PMI Australia, Feuersozietaet, Avalon Re, Ste. General de Réassurance

April 14, 2008

Standard & Poor’s Ratings Services has lowered its insurer financial strength rating on the Australian mortgage insurer PMI Mortgage Insurance Ltd. (PMI Australia) by one notch to ‘AA-‘ from ‘AA’. The rating remains on CreditWatch with negative implications, where they were initially placed on Feb. 13, 2008. “The rating action follows the downgrade of PMI Australia’s U.S.-based parent PMI Mortgage Insurance Co. (PMI Co.) on April 8, 2008 to ‘A+’ with a negative outlook. S&P said it had “lowered its ratings on PMI Co. by two notches because of the challenges confronting the mortgage and housing sectors in the U.S. PMI Co. also has above-average concentrations of risk-in-force from adjustable-rate mortgages and loans with reduced documentation.”

Standard & Poor’s Ratings Services has raised its counterparty credit and insurer financial strength ratings on Germany’s Feuersozietaet Berlin Brandenburg Versicherung AG (FS) and Oeffentliche Lebensversicherung Berlin Brandenburg AG (OL) to ‘A’ from ‘A-‘. The outlook is stable. “The upgrade reflects our revision of the companies’ status to core from strategically important to the Versicherungskammer Bayern Group (core operating entities rated A/Stable/–),” said the bulletin. “The change in status reflects the successful completion of FS’ and OL’s strategic and operational integration within the VKB group,” explained S&P credit analyst Ralf Kuerzdoerfer. “Both companies’ operations are now closely aligned with the parent’s strategic goal of becoming the ‘insurer of the regions.’ The companies will operate solely in Berlin and Brandenburg under their well-established brand names.”

Standard & Poor’s Ratings Services has lowered its subordinated debt rating on Avalon Re Ltd.’s Class C notes to ‘CC’ from ‘CCC-‘. “The action follows notification from HSBC Bank (Cayman) Ltd. that the steam pipe explosion that occurred in New York City on July 18, 2007, would be a covered event under the terms of the reinsurance agreement between Avalon Re Ltd. and Oil Casualty Insurance Ltd. (OCIL),” said the bulletin. “To date, Avalon Re Ltd. has experienced $297 million of covered losses due to Hurricane Katrina and the explosion at the Buncefield oil depot,” noted S&P credit analyst Gary Martucci. “This leaves only $3 million of covered losses that can be incurred prior to any losses being borne by the Class C noteholders.” The covered-loss report indicated that losses could be as high as $50 million. The final determination of the loss payment is not expected to occur in the near future.

Standard & Poor’s Ratings Services has revised its outlook on Morocco-based reinsurer Société Centrale de Réassurance (SCR) to stable from positive. “The outlook revision on SCR mirrors that on the sovereign ratings on the Kingdom of Morocco (foreign currency BB+/Stable/B, local currency BBB/Stable/A-3),” said the bulletin. (See also “Kingdom of Morocco Outlook Revised To Stable On More Challenging Environment; Ratings Affirmed,” published April 11, 2008, on RatingsDirect.) At the same time, S&P said it has affirmed its ‘BBB’ long-term counterparty credit and insurer financial strength ratings on SCR. “SCR is a public-policy institution according to our criteria,” explained S&P credit analyst Angélique Bayot. “This is based mainly on 94 percent ownership by the state-owned financial institution Caisse de Dépôt et de Gestion and an unconditional governmental guarantee protecting SCR’s balance sheet.”

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