Ratings Recap: Endurance, ACR Re Takaful, Stoneheath Re, Nacional de Reaseguros, Emirates, Oriental

July 30, 2008

Standard & Poor’s Ratings Services has affirmed its ‘BBB+’ counterparty credit rating on the Bermuda-based holding company Endurance Specialty Holdings Ltd. S&P also affirmed its ‘A’ counterparty credit and financial strength ratings on the holding company’s core operating subsidiaries: Endurance Specialty Insurance Ltd., Endurance Reinsurance Corp. of America, Endurance American Specialty Insurance Co., and Endurance Worldwide Insurance Ltd. (collectively referred to as Endurance). The outlook on all these companies remains stable. “The affirmation reflects the companies’ strong competitive position, very strong capitalization, strong operating performance, and excellent enterprise risk management (ERM),” stated credit analyst Taoufik Gharib. (We recently revised our opinion of the group’s ERM to excellent from strong.) Partially offsetting these strengths are the expansion in certain lines in a soft insurance cycle and material exposure to property catastrophe risk. S&P explained that “Endurance has a strong competitive position as a specialty re/insurer based on its global market presence, scale, and diversified insurance and reinsurance platforms. The company has a global and credible presence through its three main underwriting hubs in Bermuda, New York, and London. Since its creation in 2001, the company has been successful in developing its franchise organically and through several favorable acquisitions. Its competitive position has further improved in 2007 and in the first half of 2008 based on the company’s build-out of its admitted and–to a lesser extent–non-admitted platforms in the U.S. In addition, Endurance has created a competitive advantage within the areas of agricultural insurance, property catastrophe reinsurance, and hospital professional liability (health care).”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating (ICR) of “a-” to ACR ReTakaful SEA Berhad of Malaysia and Bahrain-based ACR ReTakaful MEA B.S.C. ©.Best also assigned an ICR of “bbb-” to the parent company, ACR Re Takaful Holdings Limited of the United Arab Emirates (UAE). The outlook assigned to all ratings is stable. The ratings reflect ACR ReTakaful SEA’s and ACR ReTakaful MEA’s strong capitalization, firm commitment of investors and sound business plan,” said Best. “The ratings also recognize the companies’ experienced management team and underwriting expertise.”

A.M. Best Co. has placed the debt rating of “bb+” on $350 million non-cumulative perpetual preferred securities (preferred securities) issued by Stoneheath Re (issuer), a Cayman Islands exempted company, under review with negative implications. Stoneheath Re is licensed as a restricted Class B reinsurer under the laws of the Cayman Islands and was formed to provide multi-year reinsurance capacity to certain insurance and reinsurance subsidiaries (ceding insurers) of XL Capital Ltd. (XL Capital) (Cayman Islands). Best said: “The terms of the reinsurance agreement between Stoneheath Re and XL Capital provide that upon a payment by the issuer to the ceding insurers, triggered by a catastrophic event, XL Capital will issue and deliver to Stoneheath Re Series D preference ordinary shares of XL Capital (XL preferred securities) in an amount equal to the payment made by Stoneheath Re. Cash from the issuance of preferred securities by Stoneheath Re, which previously had been deposited into a trust account and subsequently disbursed as claim payments, will be replaced by the XL preferred securities.”

Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on Spanish reinsurer Nacional de Reaseguros S.A. to ‘A+’ from ‘A’ with a stable outlook. “The upgrade reflects Nacional’s sustained strong operating performance,” explained credit analyst Ralf Kuerzdoerfer. S&P also noted that the ratings are “supported by the company’s very strong capitalization, leading position in the Spanish reinsurance market, and low risk profile. These positive factors are partly offset by Nacional’s concentration on the Spanish market, its moderate size, and high, but reducing dependence on retrocession (placing business with other reinsurers). Nacional’s operating performance is strong, thanks to conservative underwriting practices and lack of exposure to catastrophes. In 2007, the company posted a net combined ratio of 93 percent, based on published figures and a five-year average return on equity of 21 percent.”

Standard & Poor’s Ratings Services has assigned its ‘BBB+’ insurer financial strength and counterparty credit ratings to insurer Emirates Insurance Co. (PSC) (EIC) with a stable outlook. “The ratings on United Arab Emirates (UAE)-based composite insurer EIC reflect strong capitalization, strong earnings, and strong liquidity,” stated credit analyst Kevin Willis. S&P said, however that these “positive factors are partially offset by high reinsurance dependence and a concentrated equity investment portfolio within the UAE.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating (ICR) of “bbb+” of India’s Oriental Insurance Company Limited, both with stable outlooks. Best said: “The ratings reflect Oriental’s strong capitalization level, strong market presence in the insurance market in India and positive impact of newly implemented third party motor pools in India. Oriental’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remained strong in fiscal year 2007-2008. However, the company’s risk-adjusted capitalization is highly exposed to the Indian equity market, given over 60 percent of its invested assets are in Indian equities. A pool for third party (TP) liability business of commercial vehicles was set up in fiscal year 2007-2008. All general insurance companies in India are required to share the business from the pool with respect to their overall market share.

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