Ratings Recap: AIG (Taiwan) Lehman Re, Swiss Re (Denmark), Connaught, Allianz (Austria), China Ins. (Singapore)

September 18, 2008

Standard & Poor’s Ratings Services has lowered its long-term counterparty credit rating and insurer financial strength rating on AIG General Insurance (Taiwan) Co. Ltd. (AIG Taiwan), to ‘A’ from ‘A+’. S&P also placed the ratings on CreditWatch with negative implications. The downgrade follows S&P’s action in lowering its long-term counterparty rating on American International Group Inc. (AIG) to ‘A-‘ from ‘AA-‘, and its short-term counterparty credit rating to ‘A-2’ from ‘A-1+’ [See related article, as the short-term rate has now been upgraded to ‘A-1+’]. S&P also noted that it had lowered its ratings on most of AIG’s insurance operating subsidiaries to ‘A+’ from ‘AA+’. All of these ratings remain on CreditWatch with negative implications. “”The rating action mainly reflects the AIG group subsidiaries’ reduced flexibility in meeting additional collateral needs and the increasing risks tied to residential mortgage-related losses,” explained credit analyst Chang. The rating adjustments on AIG Taiwan mainly reflect the decline in implicit parent support, given the company’s strategically important position in the group and the group’s weaker financial strength.

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B’ (Fair) from A- (Excellent) and issuer credit rating (ICR) to “bb” from “a-” of Bermuda-based Lehman Re Limited, and has assigned a negative outlook to both ratings. Best noted that Lehman Re is “a wholly owned reinsurance subsidiary of Lehman Brothers Holding Inc., and the decision of Lehman Brothers to petition for Chapter 11 bankruptcy protection has prompted these rating actions.” Best added: “While Lehman Re is not included in the bankruptcy petition, A.M. Best believes that the pending reorganization of Lehman Brothers could have a significant adverse impact on Lehman Re. A.M. Best had expected that the balance sheet of Lehman Brothers would be a source of capital for Lehman Re, if needed.” Best also remains “concerned about the future of ongoing operating ties such as the securities activity between Lehman Re and other Lehman Brothers’ affiliates, the administrative and investment management services provided to Lehman Re by other subsidiaries of Lehman Brothers and the inability of Lehman Brothers to refer potential insurance clients to Lehman Re.”

A.M. Best Co. has withdrawn the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Swiss Re Denmark Reinsurance A/S (Swiss Re Denmark) and assigned a category NR-5 (Not Formally Followed) to the company. “These rating actions follow the announcement that Swiss Re Denmark has merged with Swiss Re Europe S.A. (Swiss Re Europe) (Luxembourg), a subsidiary of Swiss Reinsurance Company,” said Best. “The consolidation of the European reinsurance business under Swiss Re Europe is part of Swiss Re’s plan to optimize its legal entity structure in the European Union. Swiss Re Europe has been gradually assuming the assets, liabilities and ongoing businesses of Swiss Re’s various reinsurance subsidiaries and branches in Europe.”

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of Guernsey-based Connaught Insurance Company Limited, the captive insurance company of Thomas Greg and Sons Limited (TG&S), a printing and security specialist. The outlook for both ratings is stable. “The ratings of Connaught reflect the company’s solid and improving risk-adjusted capitalization supported by strong underwriting performance,” said Best. “An offsetting factor remains the continued significant reduction of the cash in transit that was the major business line for the captive. The reduction arises as a result of the complete disposal of a security company in Columbia by TG&S group in 2008 who was the main client.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa” of Allianz-Elementar Versicherungs-AG and Allianz-Elementar Lebensversicherungs-AG (both of Austria). The outlook for all ratings is stable. Concurrently, Best withdrew both companies’ ratings at their request and assigned the FSR a category NR-4 and the ICRs an “nr”.

A.M. Best Co. has assigned a financial strength rating of ‘B++’ (Good) and an issuer credit rating of “bbb+” to China Insurance Co. (Singapore) Pte. Ltd. (CICS). The outlook for both ratings is stable. Best explained: “The ratings reflect CICS’ diversified underwriting portfolio, solid distribution network, conservative investment strategy and adequate risk-adjusted capitalization. The ratings also acknowledge operational support from its affiliation within China Insurance Group pertaining to investment and reinsurance capacity. With an operating history of 70 years, CICS has established a strong distribution network with agents and brokers that generated 87 percent of gross premiums written in 2007. In addition, the company continues to strengthen its direct sales and build up its bancassurance channel by partnering with some Chinese banks. A.M. Best believes that a wider distribution platform will enable CICS to further expand its product reach going forward.”

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