Ratings Roundup: Aviva, Sogaz, Eisenbahn, FM Global Mexico

September 22, 2008

A.M. Best Co. has affirmed the issuer credit rating (ICR) of “a” of the non-operating holding company, the UK-based AVIVA plc, and the financial strength rating (FSR) of ‘A+’ (Superior) and ICRs of “aa-” of its rated subsidiaries. Best also affirmed its ratings of a number of debt securities issued by AVIVA. The outlook for all of the ratings remains stable. “The ratings reflect the group’s strong business profile and stable capitalization,” said Best. “An offsetting factor was the impact of weak investment markets on AVIVA’s financial performance in the first half of 2008.” Best described the Group as having “a well diversified business profile, with mature operations in the United Kingdom and Europe, and has a growing presence in North America and Asia Pacific. In 2007, the group’s total sales were comprised of 42 percent U.K., 40 percent Europe, 10 percent North America and 8 percent Asia Pacific. AVIVA’s main operations include long-term savings, general insurance and fund management. In the first half of 2008, the group’s investment sales declined by 36 percent due to the challenging investment environment; however, this was offset by an 11 percent growth in sales of life and pensions products. Overall, declining sales in the group’s U.K. operations were offset by strong growth in the group’s Europe, North America and Asia Pacific operations. A.M. Best believes the group’s sales will remain robust in the short term, as lower bond sales in the United Kingdom are offset by stronger life and pensions sales in the group’s Europe operations.

Standard & Poor’s
Ratings Services has assigned its ‘BB’ long-term local currency counterparty credit and insurer financial strength ratings and its ‘ruAA’ Russia national scale rating to Russia-based insurer OJSC Sogaz with a stable outlook. S&P said: “The ratings reflect ongoing support from OAO Gazprom (BBB/Stable/–), the world’s biggest natural gas company with which Sogaz has strong commercial ties, as well as the company’s own good operating performance and good competitive advantages.” However S&P acknowledged that “these positive factors are offset by the concentration of Sogaz’s investments in affiliated companies, the company’s high exposure to equity and credit risk, and high industry risk associated with operating in the Russian insurance market.” Credit analyst Victor Nikolskiy added: “Sogaz has a good market position and is one of the leading insurers in Russia. The company collaborates extensively with Gazprom and a number of other big companies. The ratings on Sogaz include a one-notch uplift from our stand-alone assessment, reflecting the company’s strong commercial ties with Gazprom.”

Standard & Poor’s Ratings Services has assigned its ‘A+’ long-term counterparty credit and insurer financial strength ratings to German non-life mutual insurer DEVK Deutsche Eisenbahn Versicherung Sach-und HUK-Versicherungsverein a.G. Betriebliche Sozialeinrichtung der Deutschen Bahn and subsidiaries DEVK Allgemeine versicherungs-AG and DEVK Allgemeine Lebensversicherungs-AG, reflecting their roles as core operating entities within the DEVK Insurance Group (DEVK). S&P also assigned its ‘A+’ long-term rating to DEVK Rueckversicherungs- und Beteiligungs-AG, reflecting the company’s predominant role as a captive reinsurer. The outlook on all four entities is stable. “The ratings reflect DEVK’s very strong capitalization, strong competitive position, and strong operating performance,” explained credit analyst Johannes Bender. “Offsetting factors are the group’s significant exposure to the highly competitive German motor insurance market and its need to demonstrate a more competitive position in life business.” S&P added: “The group’s strong competitive position is based on its market leadership in the German railway sector, in particular, its close ties with Deutsche Bahn AG (AA/Watch Neg/A-1+) and, increasingly, other railway organizations as the preferred insurance provider for employees and their relatives. In addition, the group benefits from its brand, which is well-established as a leading low-cost provider of private insurance lines, with a focus on motor.”

Fitch Ratings has assigned an ‘AA’ Insurer Financial Strength (IFS) rating to FM Global de Mexico, S.A. de C.V. with a stable outlook. FM Global Mexico is a newly formed insurance company wholly owned by Factory Mutual Insurance Company. Fitch noted that, “like its s U.S.-based parent, it will focus on providing comprehensive commercial property coverage that requires significant engineering expertise. “FM Global Mexico has been created to provide coverage for FM Global’s current insureds that have locations in Mexico,” Fitch continued. “FM Global Mexico will only insure commercial property in Mexico and all FM Global Mexico transactions will be peso- or U.S. dollar-denominated. Previously this business was written by fronting companies for Factory Mutual in Mexico. The initial capitalization of the company is US$20 million and anticipated business volume is expected to be modest relative to the entire organization. The rating of FM Global Mexico is dependent upon a reinsurance agreement whereby FM Global Mexico cedes 99.9 percent of its premiums and losses to Factory Mutual. Additionally, there is a stop-loss agreement in place that cedes losses in excess of a 110 percent combined ratio back to Factory Mutual. The rating also reflects Fitch’s view that FM Global Mexico is a core component of the organization’s strategy of providing engineered loss-prevention services and insurance coverage on a global basis.”

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