Ratings: Imagine, Kuwait Re, Africa Re

July 28, 2008

Fitch Ratings has revised its rating outlook on Imagine Insurance Company Limited and Imagine International Reinsurance Limited (collectively, Imagine) to Negative from Stable. Fitch currently rates both with an insurer financial strength (IFS) rating of ‘A-‘. Fitch explained that it took the action due to “concerns about the effect on Imagine’s competitive positioning and operating profile from the organization’s pending sale of its Imagine Group (UK) Limited (Imagine UK) subsidiary [See IJ web site – https://www.insurancejournal.com/news/international/2008/07/25/92202.htm].” Max has agreed to purchase Imagine UK in exchange for a roughly $22 million in cash. The acquisition includes three Lloyds underwriting syndicates, which, Fitch indicated it has viewed as providing “access to a wide variety of business lines, as an important part of Imagine’s overall underwriting platform and business strategy. These syndicates also enabled Imagine to leverage Lloyds’ insurer financial strength ratings, which are currently higher than Imagine’s ratings.” Fitch said it estimates the “Imagine’s Lloyds’ syndicates generated roughly 30 percent of the company’s gross premiums written.”

Standard & Poor’s Ratings Services has revised its outlook on Kuwait-based reinsurer Kuwait Reinsurance Co. K.S.C. to positive from stable reflecting the enhanced operating performance expectations. S&P also affirmed its ‘BBB’ long-term counterparty credit and insurer financial strength ratings on the company. “The ratings reflect Kuwait Re’s very strong capitalization, enhanced risk management and strategy, and strong investments, partially offset by its historic underwriting performance and adequate competitive position,” said the bulletin. S&P also indicated that it “expects that the company’s improved underwriting performance will be maintained at sub-100 percent combined ratio levels for 2008 and 2009.” In addition “positive momentum in rating has also been achieved by the increasingly technical approach taken to underwriting, driven by the recent management changes. Capitalization should remain at least strong, driven principally by an excellent (although falling) capital surplus at the ‘AAA’ level. Investments and liquidity are also expected to remain strong.” Credit analyst Matthew Day added: “If Kuwait Re achieves its targets and establishes a track record of underwriting profitability across the rating horizon, then the ratings could be raised to ‘BBB+’. Failure to successfully improve underwriting profitability, or a negative shift in the competitive environment for Kuwait Re, could put downward pressure on the ratings.”

Standard & Poor’s Ratings Services has revised its outlook on Nigeria’s African Reinsurance Corp. to positive from stable “reflecting the alleviation of the execution risk associated with the growth at the South African subsidiary, and the company’s improved enterprise risk management (ERM) to adequate from weak.” S&P also “affirmed its ‘BBB+’ long-term counterparty credit and insurer financial strength ratings on the company. “The ratings on Africa Re reflect its strong competitive position in the African insurance markets, good and stable operating performance, and strong capitalization,” said the bulletin. “These positive factors are offset by the ERM structure, which although adequate, lags international peers in term of sophistication, and also the political and economic environment within the company’s core markets. Credit analyst Matthew Day added: “The outlook is positive. Greater embedding of capital and risk modeling, in relation to an increasingly developed market and cedants, will be key to improving Africa Re’s understanding of the totality of risks facing the business and ensuring that the business is adequately priced. Opportunities for profitable growth within the African continent are limited, but Standard & Poor’s believes that the company is well placed to take advantage of them.”

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