Ratings: Travelers (UK), Bison, Dubai Islamic, Milli Re, Hang Seng, LIG

November 19, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating (ICR) of “a+” of UK-based Travelers Insurance Company Limited (TIC). The outlook for both ratings remains stable. Best said: “The ratings continue to reflect TIC’s excellent risk-adjusted capitalization and operating performance as well as its strong UK business profile. The ratings also factor explicit parental support in the form of a guarantee in respect of all TIC’s liabilities provided by St. Paul Fire and Marine Insurance Company, a subsidiary of TIC’s ultimate parent, The Travelers Companies, Inc.” Best indicated that it expects TIC “to maintain excellent risk-adjusted capitalization in 2008 supported by strong underwriting performance and solid anticipated investment returns driven by the company’s conservative investment strategy (TIC has no equity investments).” Best also said it “anticipates an improvement in pre-tax profit in 2008 from £78.2 million [$117.9 million] in 2007. The increased level of profit expected in 2008 is likely to be supported by a higher prior year reserve release (up from £36 million [$54.2 million] in 2007) and less severe catastrophe experience compared with 2007, which was affected by UK flood losses.” Best added that in its opinion “TIC has a strong business profile in the UK as a leading underwriter in the specialist commercial lines market. As a result of continuing strong competition in the UK in 2008, A.M. Best anticipates modest growth of less than 5 percent in gross premiums written (2007 gross premiums written: £278 million [$418.5 million]).”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a- of the Bermuda-based Bison Insurance Company Limited with stable outlooks. Bison is the single parent captive of Duke Energy and its subsidiaries. “The ratings reflect Bison’s historically adequate capitalization, generally favorable operating performance, conservative reserve levels and effective management of its catastrophe exposures,” said Best. “The ratings also recognize Bison’s history of maintaining sufficient capital and financial resources to support its ongoing obligations. Partially offsetting these positive rating factors are the company’s volatile underwriting results due to the historically low loss frequency, high loss severity nature of its risk profile, coupled with its high limits and high net retentions relative to surplus. Additionally, the continually changing risk profile of Bison’s primary insured causes large profile changes that effect the captive. This is mitigated somewhat with Bison’s conservative reserving philosophy and the ongoing, demonstrated support from its parent, Duke Energy.”

Standard & Poor’s Ratings Services has assigned its ‘BBB’ long-term counterparty credit and insurer financial strength ratings to Dubai-based insurer Dubai Islamic Insurance & Reinsurance Co. (Aman) with a stable outlook “The ratings reflect Aman’s good capitalization, good financial flexibility, and good competitive position,” stated credit analyst Lotfi Elbarhdadi. “Offsetting these credit strengths is an aggressive investment strategy and a heavy reliance on reinsurance capacities.” S&P said the “stable outlook reflects our expectation that Aman will continue to grow substantially, albeit at a slower pace than in 2007. It also reflects our expectation of good capitalization and good financial flexibility, as well as stabilized underwriting earnings. Aman should grow at least 25 percent in 2008, on a gross and net of reinsurance basis. Elbarhdadi added: “We expect Aman’s dividend and capital policy to support its high growth rates and maintain capitalization at least at a good level according to our criteria. We expect Aman to maintain a net combined ratio that is lower than 95 percent in 2008 and 2009, reflecting prudent pricing and underwriting. Finally, Aman should gradually dilute the sector and single-name concentrations of its investments, as the size of its investments grows.”

Standard & Poor’s Ratings Services said today that it lowered its Turkish national scale rating on Istanbul-based Milli Reasurans T.A.S.(Milli Re) to ‘trA’ from ‘trA+’. S&P said the “downgrade follows the recent outlook revision on the Republic of Turkey (foreign currency, BB-/Negative/B; local currency, BB/Negative/B) and the subsequent rating actions on Milli Re’s parent, Türkiye Is Bankasi A.S. (Isbank). Outlooks on the Isbank foreign and local currency counterparty credit ratings were revised to negative from stable, and the long-term Turkish national scale rating was lowered to ‘trA’ from ‘trA+’. S&P added that the “national scale rating on Milli Re reflects the company’s marginal quality of investments (from a global perspective) and concentration in the Turkish market, which exacerbates the potential impact of earthquake-exposure modeling risk. These negative factors are partially mitigated, however, by Milli Re’s dominant competitive position in Turkey and good capitalization. Credit analyst Neil Gosrani added: “Quality of investments is the main constraining factor for the rating. Milli Re invests in instruments and deposits with some of the best credit quality available in Turkey, although this still constitutes a marginal quality of investments on a global scale.”

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of “aa-” of Hang Seng General Insurance (Hong Kong) Company Limited (HSGI) with stable outlooks. “The ratings reflect HSGI’s solid risk-adjusted capitalization, profitable underwriting performance and prudent investment portfolio,” said Best. “The ratings also acknowledge the company’s secured distribution capacity.” Best explained that HSGI, as part of Hang Seng Bank Limited, “continues to utilize bancassurance as its primary distribution channel, which generated approximately 86 percent of the company’s gross premiums written in the first half of 2008. With the well established distribution platform and disciplined underwriting guidelines, HSGI achieved consistent underwriting results during 2003 to 2007, as evidenced by the average combined ratio of 77.1 percent. Despite prevailing soft market conditions, the company’s underwriting
profitability is expected to remain sound in 2008.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of South Korea’s LIG Insurance Company Limited with stable outlooks. “The ratings reflect LIG’s improved capitalization, sound underwriting performance, excellent market profile and stable investment performance,” said Best. “The ratings also recognize the company’s effort to sustain profit-oriented growth. During fiscal year 2007, the company enhanced its local solvency ratio by approximately 30 percentage points to 222 percent, which is favorable amongst peer competitors in the market. The company’s capitalization level, as measured by Best’s Capital Adequacy Ratio (BCAR), also has improved. This was due to the lower growth relative to the market in terms of premium written and increased retained earnings based on the favorable underwriting and investment performance.” Best also explained that the “non-life market grew around 15 percent in terms of direct premiums written, whereas the company itself grew by 7 percent in fiscal year 2007. The retained earnings were KRW 118 billion (USD 117 million) in fiscal year 2007. In fiscal year 2007, LIG’s overall combined ratio improved slightly and stood at 103 percent due to the improvement in the motor insurance business, which is expected to continue in fiscal year 2008.”

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