Ratings Recap: Eureko, Steamship, QBE (Notes), SOLID

December 2, 2008

Standard & Poor’s Ratings Services has revised its outlook on Netherlands-based Eureko B.V. and related core subsidiaries to negative from stable. S&P also affirmed the ‘A-‘ long-term counterparty credit rating on Eureko B.V. and the ‘A+’ long-term counterparty credit and insurer financial strength ratings on Eureko’s core operating subsidiaries. “The outlook revision reflects continued concerns about the operating performance in the Dutch businesses, primarily in life insurance,” explained credit analyst Paul Bradley. Eureko is the holding company of one of The Netherlands’ largest insurance groups, with gross written premiums (GWP) of €14.9 billion [$18.92 billion] in 2007. Operating entities of the Eureko group benefit from the group’s strong capitalization, strong competitive position, and strong financial flexibility. These positive factors are partially offset by Eureko’s under performing life and pensions businesses, particularly in The Netherlands, and its limited geographic diversification. S&P said the “negative outlook reflects continued challenging conditions in Eureko’s core market. Bradley added that the “ratings may be lowered if Eureko cannot improve its operating performance to levels comparable with its peers, in life and non-life insurance in The Netherlands, in 2009. Any improvements are expected to be through greater efficiencies and not at the expense of market positions. A revision of the outlook to stable is likely if Eureko produces results for 2009 that are at least in line with its major peers in the Dutch market,” he added.

A.M. Best Co. has affirmed the financial strength ratings of ‘B++’ (Good), but has downgraded the issuer credit ratings (ICR) to “bbb” from “bbb+” of The Steamship Mutual Underwriting Association (Bermuda) Limited and The Steamship Mutual Underwriting Association Limited (Steamship London) and has revised its outlook on both ratings to negative from stable. Concurrently, Best withdrew the ratings at the companies’ request and assigned an NR-4 to the financial strength ratings and an “nr” to the ICRs. Best explained: “The ICR of Steamship Bermuda has been downgraded due to weakening in risk-adjusted capitalization resulting from substantial investment losses. Best added that despite some early signs of improvement in Steamship Bermuda’s underwriting performance, it “believes the marine protection and indemnity market remains competitive. Additionally, Steamship Bermuda is exposed to continuing uncertainty in investment markets. Both these factors are reflected in the negative outlook for the ratings.” Best also noted that the “ratings of Steamship London are reliant upon the financial strength of Steamship Bermuda, which provides Steamship London with reinsurance.”

A.M. Best Co. has assigned an indicative rating of “bbb+” to the forthcoming senior notes to be issued by Australia’s QBE Insurance Group Limited. The outlook for the rating is stable. All other ratings on QBE-rated entities and related debt issues remain unchanged; “although,” Best said, “it may be necessary to review the ratings on certain QBE companies when the group’s plans to underwrite business from newly acquired underwriting agencies are finalized.” Best also indicated that it “anticipates that the notes will be used to partly replace the group’s perpetual preferred securities as part of a capital restructuring that will include an AUD 2 billion (USD 1.3 billion) equity issue to fund the acquisition of four underwriting agencies (three in the United States and one in Europe and the renewal rights of a further agency in the United States).” Best said it “believes that the impact of these transactions on QBE’s consolidated risk-adjusted capitalization is broadly neutral. Financial and debt leverage ratios are expected to remain within A.M. Best tolerance levels.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘B+’ (Good) from ‘B’ (Fair) and the issuer credit rating (ICR) to “bbb-” from “bb” of Sweden’s SOLID Försäkrings AB (Solid) with stable outlooks on both ratings. “The rating action reflects Solid’s significantly improved risk-adjusted capitalization, continued strong operating results and its good niche position in the Swedish extended warranty market,” Best explained. “These positive factors are partly offset by a reinsurance program dominated by unrated reinsurance companies.” Best said that in its view, “Solid’s risk-adjusted capitalization has significantly improved following the reduction of a high amount of intercompany loans. However, the reinsurance program relies predominately on unrated reinsurance companies and, in particular, on an unrated captive based in Switzerland into which Solid cedes more than 50 percent of its premiums.”

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