Ratings Roundup: HSBC Insurance, AXA Ireland, XL/Mangrove

August 11, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Hong Kong-based HSBC Insurance (Asia) Limited with a stable outlook. “The ratings reflect HSBC Insurance’s sound underwriting earnings, leading
market presence and diversified insurance products offerings,” said Best. “The ratings also recognize the strong distribution capability provided its ultimate parent, Hong Kong and Shanghai Bank Corporation Limited (HSBC). Best added that “HSBC Insurance’s profitable underwriting results were evidenced by the average combined ratio of 78.5 percent during 2003 to 2007. Notwithstanding the deterioration in loss ratio to 48 percent in 2007 from 46 percent in 2006 due to the relatively unfavorable claim experience in its medical line, the company’s overall underwriting result remains favorable, with a combined ratio of 85 percent for the year (83 percent for 2006). In 2007, HSBC Insurance became the largest insurer in the Hong Kong general insurance market, representing 6.7 percent market share in gross premiums written.”

Standard & Poor’s Ratings Services has lowered its long-term insurer financial strength and counterparty credit ratings on Irish non-life insurer AXA Insurance Ltd. (AXA Ireland) to ‘BBB+’ from ‘A-‘ and has assigned the ratings a stable outlook. “The downgrade reflects weakened accident-year operating performance and the impact that volatility in the capital markets has had on investment returns in 2008,” explained credit analyst Neil Gosrani. “This has compounded the significant depletion in capital adequacy following the payment of a €280 million [$418 million] dividend in 2007.” He added that S&P still “views operating performance as good, but with lower levels of operating profitability prospectively, it is unlikely that AXA Ireland will replenish capital to a level that would support the previous rating.” S&P indicated that the “ratings continue to be supported by one notch of implied support from AXA Group, although we do not view this entity as strategically important to its ultimate parent. AXA Ireland’s concentration in the highly competitive Republic of Ireland motor insurance market is an offsetting factor.”

A.M. Best Co. has assigned a debt rating of “bb+” to XL Capital Ltd’s $500 million series C preference shares issued in connection with the company’s exercise of the put option under its Mangrove Bay Pass Through Trust contingent capital facility. “The rating is under review with negative implications,” said Best. The rating agency has also withdrawn the debt rating of “bb+” on Mangrove Bay’s $500 million 6.102 percent trust preferred shares. “These rating actions follow XL Capital’s recently announced capital action plan in response to its agreement with Syncora Holdings Ltd. (f/k/a Security Capital Assurance Ltd.) (SCA),” said Best.

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