Ratings Recap: Flagstone Re, Lehman Re, Lonpac, Allianz Suisse, Sunderland Marine, Ansvar

October 3, 2008

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Flagstone Reassurance Suisse SA, as well as the ICR of “bbb-” of its holding company, Bermuda-based Flagstone Reinsurance Holdings Limited. The outlook for both ratings is stable. Concurrently, Best announced that it has withdrawn the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Bermuda’s Flagstone Reinsurance Limited and assigned an FSR of NR-5 (Not Formerly Followed) and an ICR of “nr”. Best noted that the “rating actions reflect the completion of the restructuring of the group’s operating entities effective October 1, 2008. On August 18, 2008, Flagstone Holdings announced the reorganization of its reinsurance operating subsidiaries, Flagstone Reassurance and Flagstone Re, into one merged entity with Flagstone Reassurance as the surviving entity. Flagstone Holdings will continue to write business from Bermuda through the Bermuda branch of Flagstone Reassurance while also keeping its corporate headquarters located on the island. This restructuring consolidates Flagstone Holdings’ capital into one main operating entity resulting in capital efficiencies and streamlines the evaluation of capital adequacy within the rating process.”

A.M. Best Co. has downgraded the financial strength rating to ‘F’ (In Liquidation) from ‘B’ (Fair) and issuer credit rating to “rs” from “bb” of Bermuda-based Lehman Re Limited. “The ratings now reflect that Lehman Re petitioned for the appointment of liquidators in Bermuda Commercial Court on September 23, 2008,” Best explained. The rating agency also noted that, “Lehman Re is a wholly-owned subsidiary of Lehman Brothers Holdings Inc.,” which has filed for bankruptcy protection, “but Lehman Re continues to be part of the Lehman Brothers bankruptcy estate.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of Malaysia’s Lonpac Insurance Bhd with a stable outlook. “The ratings reflect the company’s track record of profitable operation, diversified business composition and solid distribution capability,” said Best. “Lonpac has a strong track record of profitable operation over the last five years. Due to the favorable claim experience and stable expense ratio, Lonpac recorded a steady improvement in its underwriting margin. The company’s combined ratios averaged 78.7 percent over the last five years through 2007. Improving underwriting results coupled with a stable stream of investment earnings contributed to a significant increase in Lonpac’s return on equity from 15.2 percent in 2003 to 38.9 percent in 2007. Lonpac offers a wide range of general insurance products to its local non-life market, leading to a sound spread of risk in terms of premium composition. The diversified insurance book consists mainly of short-tailed
classes. Fire and motor are the core components of the portfolio.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of Allianz Suisse Versicherungs-Gesellschaft (ASV) and Allianz Suisse Lebensversicherungs-Gesellschaft (ASL). Best subsequently withdrew the ratings at the companies’ request and assigned the FSR an NR-4 and the ICR an “nr”.

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of the UK-based Sunderland Marine Mutual Insurance Company Limited (SMMI) with a stable outlook. “Best said it “believes that despite weakening, SMMI will maintain excellent risk-adjusted capitalization in 2008. The company holds a significant proportion of its investment portfolio in equities (26 percent of total invested assets at year-end 2007), which has resulted in capital losses in current market conditions. However, in A.M. Best’s opinion, SMMI will maintain sufficient surplus to support its higher risk investment strategy.” Best also noted that it expects SMMI to “produce a loss for the 2008,financial year, driven predominantly by losses from the company’s investment portfolio. Whilst an underwriting deficit is expected in 2008 as a result of continued weak rating environment, SMMI’s prudent pricing strategy is likely to maintain the combined ratio at a comparable level to the 103 percent reported in 2007.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of New Zealand’s Ansvar Insurance Limited with a stable outlook. “The ratings reflect Ansvar’s strong risk-adjusted capitalization, consistent operating profitability and prudent investment strategy,” said best. “The ratings also acknowledge the company’s strong presence in the niche markets of faith, education and community care groups in New Zealand, primarily focusing on its commercial portfolio. Ansvar’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, increased in 2007. This improvement was supported by the company’s conservative underwriting leverage and consistent high retention of operating earnings. The company’s net premium leverage improved to 0.68 times in 2007 from 0.80 times in 2006 due primarily to lower premium risk retention. Prospectively, higher premium accumulation is expected to gradually weaken the company’s risk-adjusted capitalization.” Best nonetheless said that it “believes that Ansvar will maintain a level of capitalization that will be supportive of its rating.”

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