Ratings Recap: Guardian, Old Republic, Ingosstrakh, Cattolica, Caelus Re, Secura, Elwood

June 26, 2008

A.M. Best Co. has upgraded the issuer credit rating to “bbb+” from “bbb” and affirmed the financial strength rating of ‘B++’ (Good) of Guardian Insurance Company, Inc. of the U.S., Virgin Islands. The outlook for both ratings is stable. “These rating actions reflect Guardian Insurance’s favorable operating results, dominant automobile market share, strong name recognition in the U.S., Virgin Islands (USVI) marketplace and the financial support Guardian Insurance receives from its ultimate parent, Lockhart Companies Incorporated (LCI),” Best explained. “Guardian Insurance has established strong name recognition and is the leading automobile writer with a dominant share of the local market. The company’s underwriting and operating results have improved substantially in recent years and compare favorably to its industry composite. In addition, Guardian Insurance benefits from the financial support it receives from LCI, a major real estate developer in the USVI. Support has been demonstrated by past capital contributions to enhance Guardian Insurance’s operations and improve its capitalization and LCI’s stated willingness to make further cash infusions if needed.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of Old Republic Insurance Company of Canada with stable outlooks. Best said the ratings on the Company “are based on its excellent capitalization, solid operating performance and consistently favorable reserve development. Stable underwriting results are attributable to improved rate adequacy and stricter underwriting guidelines. In addition, the company has been re-balancing its book of business to focus on small to medium-sized commercial accounts, which have been less volatile to pricing pressures as compared to larger commercial accounts. The ratings also acknowledge the benefits derived from the financial support and flexibility afforded by its parent company, Old Republic International Corporation (ORI) (Chicago, IL), as well as the synergies it realizes as an affiliate of Great West Casualty Company (South Sioux City, NE). These affiliates integrate their expertise in underwriting, investment guidelines, claims processes, reinsurance protection and technology platforms. Partially offsetting these positive rating factors are Old Republic Insurance Company of Canada’s limited product offerings and softening market conditions. With a majority of its business concentrated in the commercial trucking segment, the company is exposed to the cyclicality and volatility associated with this market segment.”

Standard & Poor’s Ratings Services has affirmed its ‘BBB-‘ long-term counterparty credit and insurer financial strength ratings on Russian Ingosstrakh Insurance Co. with a stable outlook is stable. S&P also affirmed its ‘ruAA+’ Russia national scale rating. S&P said: “Ingosstrakh enjoys growing competitive advantages in The Russian Federation (foreign currency BBB+/Positive/A-2; local currency A-/Positive/A-2; Russia national scale rating ‘ruAAA’) through intensive growth of its personal lines portfolio and increasing diversification of business to countries in the Commonwealth of Independent States (CIS).” Credit analyst Victor Nikolskiy. Said the “ratings also reflect the management team’s positive track record and a sustained good level of operating performance.” However S&P noted that “these strengths are offset by marginal investment profile; the company’s untested, marginal financial flexibility; and high industry and country risks.” “We expect sustained good operating performance from Ingosstrakh, with a net combined ratio of less than 100 percent, return on equity exceeding 20 percent, and maintenance of capital adequacy within our risk-based capital model’s ‘BBB’ range,” Nikolskiy added.

Standard & Poor’s Ratings Services has revised its outlook on Italian composite insurer Società Cattolica di Assicurazione to negative from stable. S&P also affirmed its ‘A-‘ long-term counterparty credit and insurer financial strength ratings on Cattolica. S&P credit analyst Paola del Curatolo explained: “The outlook change reflects our increasing concerns that the company will not be able to restore profitability, which deteriorated significantly in 2006 and 2007, and business growth, which was affected by the loss of an important bancassurance agreement and by the pruning of the property/casualty portfolio.” Factors supporting the ratings are Cattolica’s “strong competitive position in the Italian insurance market and strong financial flexibility,” said S&P. Offsetting factors include: “the group’s weakened operating performance and reduced growth that could hinder its competitive position. The negative outlook reflects our concerns that Cattolica will not be able to recover profitability in the non-life business and attain yearly growth of 13.1 percent in life and 6.9 percent in property/casualty (P/C) as stated in the strategic plan. A downgrade would result if the company failed to improve its operating performance in P/C and posted a combined ratio higher than 100 percent in 2008; or if it failed to reach its targets for growth in the life and P/C businesses (compounded annual growth rate of 13.1 percent and 6.9 percent respectively). The outlook would be revised to stable if the group meets these targets.”

Standard & Poor’s Ratings Services has assigned its ‘BB+’ senior secured debt rating to the $250 million Series 2008-1 Class A variable-rate notes issued by Caelus Re Ltd. The notes are the initial offering under Caelus Re’s variable-rate note program. Nationwide Mutual Insurance Co. (A+/Stable/–) and certain of its subsidiaries and affiliates (collectively referred to as the ceding insurer) have entered into a reinsurance agreement with Caelus Re. The purpose for issuing the notes and entering into the reinsurance agreement is to provide the ceding insurer with a source of indemnified multi-year reinsurance coverage against certain catastrophic risks. “The rating on the notes is based on the probability of attachment as modeled by AIR Worldwide Corp.,” noted S&P credit analyst Gary Martucci. “Based on the sensitivity analysis, the annualized probability of attachment for the notes is 1.36 percent.”

Standard & Poor’s Ratings Services said today that it affirmed its ‘AA-‘ long-term counterparty credit and insurer financial strength ratings on Belgian-based reinsurer Secura N.V. (Secura) with a stable outlook. “The ratings continue to primarily reflect an explicit guarantee from parent company KBC Insurance N.V. (AA-/Stable/–), which meets all of Standard & Poor’s relevant criteria. The guarantee relates to all current and future reinsurance contracts issued by Secura and has very limited scope for termination,” said S&P. “The stable outlook reflects that on parent and guarantor KBC Insurance.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Bermuda-based Elwood Insurance Limited with a stable outlook. “Elwood’s ratings recognize its excellent capitalization level, history of positive operating performance, conservative reserve practices and effective management of exposures,” Best explained. “Over the past five years, return on surplus has averaged 23.1 percent, while surplus levels have increased at a compound annual growth rate of 24.2 percent through the accumulation of net profits.” As offsetting factors Best said it remains concerned “with the high balance sheet leverage of Elwood’s ultimate parent, Celanese Corporation, which could negatively impact the operations of its captive. Additional offsetting rating factors are Elwood’s exposure to some low frequency, high severity hazards in its risk profile, coupled with high gross limits and high net retentions.”

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