Ratings Roundup: Sovag, Syndicate 2003, Polish Re, Tunis Re

September 26, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating (ICR) of “bbb” of Germany’s SCHWARZMEER UND OSTSEE Versicherungs-Aktiengesellschaft SOVAG (Sovag) with a stable outlook. “The affirmation reflects Sovag’s excellent risk-adjusted capitalization, good operating performance and good business position,” said Best. The rating agency also indicated that it “expects Sovag’s risk-adjusted capitalization to remain excellent factoring a stable premium income, improved reserving methodology and a relatively low net exposure to natural catastrophe risks. The company’s capitalization is further supported by anticipated retained earnings and an increase in equalization reserves in 2008.” However, best indicated that it expects Sovag’s earnings to “moderately decrease in 2008, mainly as a consequence of deteriorating technical results from softer motor and reinsurance rates and higher acquisition expenses.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating (ICR) of “a+” of Lloyd’s Syndicate 2003, which is managed by Catlin Underwriting Agency Limited (CUAL), a member of the Bermuda-based Catlin Group Limited (CGL) (See above article). The outlook for the ratings remains stable. Best said: “The ratings of syndicate 2003 reflect the financial strength of the Lloyd’s market, which underpins the security of all Lloyd’s syndicates.” Best also said it “believes that the syndicate benefits from the financial flexibility of CGL, which is expected to maintain strong consolidated risk-adjusted capitalization in 2008. The syndicate also benefits from access to the group’s banking club facility (with an available limit of $600 million), which can be used to support the business activities of its operating entities.” Syndicate 2003’s underwriting capacity for the 2008 year of account is unchanged at £1.1 billion ($2.025 billion), which Best indicate allows it “to support growth in its business written through the group’s U.S. and international offices, whilst business written is reduced in Lloyd’s where rates are weakening more rapidly.” The rating agency also anticipates “good financial results in 2008, despite the impact of hurricanes Gustav and Ike. Underwriting performance is expected to remain solid, but investment income will be adversely affected by weak economic conditions. Rate adequacy across the syndicate’s portfolio remains favorable despite a weakening trend for most classes.”

A.M. Best
Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Polskie Towarzystwo Reasekuracji S.A. (Polish Re) with stable outlooks. “The ratings reflect Polish Re’s improving technical performance and business diversification in its regional markets,” Best explained. “Offsetting factors are the company’s moderate level of risk-adjusted capitalization and limited financial flexibility.” Best said it “believes that Polish Re’s prospective risk-adjusted capitalization is supportive of its current ratings, impacted by a significant increase in premium risk in 2007. The company’s net premiums written increased by approximately 35 percent in 2007, relative to growth in capital and surplus of 5 percent, placing further pressure on Polish Re’s capital position. Provided growth in premiums do not exceed 10 percent in each of the next two years,” Best said it “expects the company’s risk-adjusted capitalization to recover gradually going forward. Furthermore, any potential acquisition of Polish Re by the Fairfax Financial Holdings Limited is likely to improve its capital position and financial flexibility.

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of Societe Tunisienne de Reassurance (Tunis Re) with stable outlooks. “The ratings reflect Tunis Re’s very good domestic business profile, which is partially offset by the dependence on a small number of cedants in Tunisia,” Best noted. “Other rating factors include Tunis Re’s strong risk-adjusted capitalization and good operating performance. ” Best said it “believes that Tunis Re maintains a very good domestic business profile as a national reinsurer created by the State and the local insurers to consolidate the retention capacity of the Tunisian insurance market and to manage various insurance pools. Although there are no compulsory reinsurance sessions in Tunisia, local insurers cede between 15 percent-20 percent of their premiums to Tunis Re based on a gentlemen’s agreement. As a result, Tunis Re has a market share of approximately 25 percent in the domestic reinsurance market. However, Tunis Re’s limited size and capacity continues to hinder its development in the international market. Furthermore, the company has significant business exposure to a small number of domestic cedants in a market where international competition is progressively increasing.”

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