Ratings Roundup: SALAMA, MBIA/Ambac (Chile), Misr, SJ China, Starbound, Great American

August 18, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of SALAMA Islamic Arab Insurance Company (P.S.C.), which is based in the United Arab Emirates. The outlook for both ratings is stable. “The ratings of SALAMA reflect its strong risk-adjusted capitalization, supported by very good operating performance, and its solid and improving business profile,” said Best. The rating agency added that in its opinion “SALAMA’s current and prospective risk-adjusted capitalization remains at a strong level. SALAMA in 2007 utilized its risk-adjusted capitalization aggressively mainly due to changes in the investment strategy as well as a significant growth in the company’s consolidated business portfolio. Going forward, A.M. Best believes that SALAMA’s risk-adjusted capitalization is to stay at similar levels as in 2007 and is expected to maintain its strong position supported by a medium risk profile and full retained earnings.”

Standard & Poor’s Ratings Services has affirmed its ‘AA’ rating on six Chilean bond-insured transactions and removed them from CreditWatch Negative following the similar action on the financial enhancement rating on MBIA Insurance Corp. and Ambac Assurance Corp. taken on Aug. 14. The outlook is negative. (See “MBIA Insurance Corp. ‘AA’ Rtgs Affirmed With Negative Outlook; Off CreditWatch Neg,” and “Ambac Assurance Corp. ‘AA’ Ratings Affirmed And Taken Off Watch Neg; Outlook Is Negative,” published on Aug. 14, 2008, on RatingsDirect.). “The ratings on the affected Chilean transactions reflect MBIA and Ambac’s unconditional and irrevocable guarantee of payment of scheduled interest and principal on the notes, according to the transactions’ terms,” explained credit analyst Luciano Gremone. S&P has also affirmed its ‘AA’ ratings on six companies and removed them from CreditWatch Negative.

A.M. Best Co. has removed Egypt’s Misr Insurance Company from under review with negative implications and affirmed the financial strength rating of ‘A’- (Excellent) and the issuer credit rating to “a-“. However, Best has assigned a negative outlook to both ratings, which, it said, “reflects Misr’s continued reserve strengthening during 2008, impacting its non-life technical performance driven by its motor compulsory account. Offsetting these factors is its solid risk-adjusted capitalization and its leading business position in the Egyptian insurance market.” Best also noted that “Misr has undergone significant restructuring over the past year, following the merger with Al Chark Insurance Company and The Egyptian Insurance Company. The company has experienced additional reserve strengthening during 2008 (further to 2007), with reserves increasing by EGP 850 million (USD 156 million) due to reserves deficiencies relating to its historic compulsory motor business. Technical performance has suffered as a result,
with a loss ratio in excess of 100 percent for 2008.” Best noted, however, that it expects these results to improve

Standard & Poor’s Ratings Services has raised its local-currency counterparty credit rating and insurer financial strength rating on China-based Sompo Japan Insurance (China) Co. Ltd. (SJ China) to ‘A’ from ‘A-‘ and assigned a stable outlook. “The rating actions reflect promising business growth at SJ China, which occupies a good niche position, supported by strong capitalization. The company is now making the transition from being a start-up to a more mature business. SJ China is a wholly owned subsidiary of Sompo Japan Insurance Inc. (rated ‘AA-‘/Stable/-) and is strategically important to the parent in terms of the group’s expansion strategy in Asia,” said S&P. “The ratings on SJ China also reflect explicit support from the parent in the form of a net worth maintenance agreement. Offsetting factors for the ratings are the company’s high cost structure compared to those of its peers, its relatively small market share, and the regulatory restrictions imposed on foreign players in China’s insurance market that hinder the company’s geographic expansion.”

A.M. Best Co. has withdrawn the issuer credit rating of “a” of Starbound Reinsurance II Limited (Bermuda). Best said it took the action as a “result of Starbound Reinsurance II Limited terminating its one year retrocessional reinsurance agreements with Renaissance Reinsurance Ltd. (Bermuda) and distributing the initial debt proceeds and remaining equity to investors.”

Standard & Poor’s Ratings Services today has assigned its ‘A’ financial strength and counterparty credit ratings on Great American International Insurance Ltd. (GAIIL), an Irish-domiciled P/C insurance writer ultimately owned by American Financial Group Inc. (rated ‘BBB/Stable/–) with a stable outlook. “The ratings on GAIIL reflect the company’s status as the international arm of the core Premier Lease and Loan Services Division of Great American Insurance Co,” explained credit analyst Steven Ader. “The ratings are supported by GAIIL’s underwriting of a core and integral line of business consistent with the group, explicit support rendered by a strong quota-share arrangement, and management’s commitment to maintaining extremely strong levels of capital.” S&P said the “rating on AFG reflects its operating subsidiaries’ strong competitive position in the specialty property/casualty sector through the Great American Property/Casualty Insurance Group (Great American) and in the 403(b) and fixed indexed annuity markets through Great American Financial Resources Inc.” It also reflects “strong and improving operating results, improved financial flexibility, and strong capital adequacy in both the property/casualty and life insurance groups,” said S&P.

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