Ratings Recap: Allied World, Tokio Marine (Singapore), Al Fajer

July 1, 2008

A.M. Best Co. has commented that the ratings of Bermuda-based Allied World Assurance Company Holdings, Ltd. and its subsidiaries remain unchanged following the recent announcement that the company has entered into a definitive agreement to acquire Darwin Professional Underwriters, Inc. (See related article in National). The transaction is expected to close in fourth quarter 2008, subject to regulatory approval. Allied World plans on financing the deal, valued at $550 million, through a combination of excess capital and a new security issuance. “Absent the security issuance, Allied World has sufficient capital to fund the entire transaction,” said Best. “The acquisition of Darwin accelerates Allied World’s expansion of its U.S. insurance platform. The transaction provides Allied World with profitable books of business in both healthcare and professional liability. Furthermore, Darwin’s book of business will allow Allied World greater access to small and mid-size accounts. Partially offsetting the positive attributes of the acquisition is the execution and integration risk associated with the transaction. In addition, the general casualty market has been experiencing softening market conditions, and downward pricing pressures have been prevalent.

Standard & Poor’s Ratings Services has raised its insurer financial strength and counterparty credit ratings on Tokio Marine Insurance Singapore Ltd. (TM Singapore) to ‘AA-‘ from ‘A+’. The outlook is stable. S&P also said that it has withdrawn “its ‘AA-‘ local-currency insurer financial strength and counterparty credit ratings on The Tokio Marine & Fire Insurance Co. (Singapore) Pte. Ltd. (TMF Singapore) after its merger with TM Singapore. Credit analyst Eunice Tan explained: “The rating action reflect the strengthened strategic importance of TM Singapore to its majority parent, Japan-based Tokio Marine & Nichido Fire Insurance Co. Ltd. [local currency AA/Stable/A-1+]. We expect the merged entity to play a significant role in the group’s expansion in Asia. The rating on TM Singapore also reflects the company’s sound capitalization, good business profile, and satisfactory investment strategy.” S&P noted, however, that “intense competition in the domestic market and the company’s increased risk profile while it expands its local business have added to the pressure on its operating performance.”

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘A-‘ (Excellent) and an issuer credit rating (ICR) of “a-” to Kuwait’s Al Fajer Retakaful Insurance Company KSCC with stable outlooks. “The ratings reflect the company’s excellent projected risk-adjusted capitalization on a combined basis and the well capitalized retakaful fund, in addition to the regionally experienced management team,” said Best. “Partially offsetting factors are the execution risk of the business plan associated with a start-up company and the competition levels in the Middle East and South East Asia. Best also noted that Al Fajer Re provides Sharia’ compliant reinsurance protection, predominantly on a treaty basis, to non-life risks with a projected business income of approximately KWD 10 million ($38 million) in March 2009, which is expected to grow to approximately KWD 28 million ($104 million) by 2011.”

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