Ratings Recap: China Ins (NZ), Wagram (EDF), Ecclesiastical, Ansvar, Russian Re, ZEP Re

December 4, 2008

A.M. Best Co. has revised the outlook to positive from stable for New Zealand-based China Insurance (NZ) Company Limited (CINZ) and has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-“. Best said the “rating affirmations reflect CINZ’s improved risk-adjusted capitalization and stable investment performance. The revision of CINZ’s rating outlook reflects its recent profitable underwriting performance and the management’s commitment to enhance the company’s profitability,” and it anticipates that “the new management will continue to guide CINZ towards operation efficiency and establish a quality book of business. Best noted that, although “CINZ’s underwriting performance was volatile over the past five years, it gradually improved in fiscal year 2007, as indicated by its combined ratio of 92.9 percent (compared to 121.9 percent in 2006 and 119.0 percent in 2005). This improvement was driven predominantly by both favorable claims experience and cautious control on the operating expense. The operating result for the first nine months of 2008 continued to demonstrate management’s commitment to enhance CINZ’s operation efficiency.”

Standard & Poor’s Ratings Services has said that the ratings on Dublin-based Wagram Insurance Co. Ltd. – issuer credit and financial strength ratings are currently “AA-‘ – will nonetheless “remain on CreditWatch with negative implications, where they were placed on Oct. 7, 2008.” S&P explained that “Wagram is a wholly owned, Dublin-based captive insurer of energy group Electricit√© de France (EDF; AA-/Watch Neg/A-1+), as such it qualifies as a captive insurer under S&P’s rating criteria, and is rated at a level commensurate with the ratings on the group. “Despite only being established in 2004, Wagram has developed a key role within the EDF group’s risk management function,” SD&P continued. “Although managed by an external third party, EDF retains considerable representation within Wagram, as half of Wagram’s directors are from EDF’s risk management department. Wagram relies solely on business from EDF for the preservation of its competitive position and financial flexibility, hence Wagram’s fortunes are inextricably linked to those of EDF. Wagram is managed by Aon Insurance Managers (Dublin) Ltd. (Aon Dublin; not rated) and benefits from Aon Dublin’s experience in managing captive insurers. Additional benefit is gained from the oversight of the Irish Financial Service Regulatory Authority (IFSRA). The CreditWatch placement on Wagram is not due to any changes to the stand-alone characteristics of the insurance company. The CreditWatch placement follows that of Wagram’s parent, EDF. EDF was placed on CreditWatch with negative implications on Sept. 25, 2008, following its cash offer for U.K.-based nuclear generator British Energy Group PLC (BB/Watch Pos/–). The ratings on the group will determine the ratings on Wagram for as long as Wagram continues to qualify as a captive insurer under Standard & Poor’s rating criteria.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of the UK’s Ecclesiastical Insurance Office plc (EIO). Best also affirmed the rating of “bbb” on the £66.45 million ($98.26 million) 8.625 percent non-cumulative irredeemable preference shares issued by EIO. The outlook for all the ratings remains stable. Best said it “believes that EIO will maintain strong consolidated risk-adjusted capitalization in 2008, despite the impact of weakening in the economic climate on the company’s equity investments (25 percent of 2007 year-end total investments held for all non-life business). EIO’s consolidated risk-adjusted capitalization is likely to be sufficiently strong to absorb substantial expected unrealized losses in 2008 resulting from its investment strategy.” In addition Best said the Company “is expected to report a consolidated pre-tax loss in 2008 (2007: £35.6 million [$52.67 million] profit), reflecting a technical loss as well as investment losses. Although the technical result in 2008 is likely to benefit from the absence of UK weather-related losses which negatively affected 2007 results.” Best also anticipates a “consolidated combined ratio comparable to the 105 percent achieved in 2007. This reflects increasing claims relating to the theft of metal from EIO’s major property risks in the UK, weather-related losses in Australia and the company’s exposure to several large single risk losses in 2008 from its international property portfolio.” However, Best indicated that for 2009 it “believes that the company’s prudent reserving strategy and robust reinsurance program are likely to continue to help EIO maintain stable underwriting results, although a substantial improvement is unlikely due to a continuance of competitive market conditions in the UK.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of the UK-based Ansvar Insurance Company Limited with a stable outlook. Best said it “believes that Ansvar will maintain excellent risk-adjusted capitalization in 2008, supported by solid retained earnings. The company benefits from the support of the main reinsurance program of Ecclesiastical Insurance Office plc (EIO), Ansvar’s parent company [See above].” Best also indicated that “Ansvar maintains a 22.5 percent intra-group quota share reinsurance arrangement with its parent, which will support risk-adjusted capitalization as the company expands.” Best also noted that Ansvar is “likely to report a good pre-tax profit in 2008, higher than the £2 million [$2.96 million] achieved in 2007. Excellent underwriting performance, underpinned by favorable claims experience and positive prior year loss development, is expected to support financial results in 2008.” Ansvar also “maintains a solid business profile within its niche sector comprising churches, charities and other voluntary organizations.” It has no exposure to the equity market. “The company focuses on the small-to-medium sized segment of the UK market, writing a range of commercial business and personal lines products designed for individuals connected with its core market,” Best concluded
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A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of Russian Reinsurance Company, JSC with stable outlooks. “The ratings reflect Russian Re’s good and improving risk-adjusted capitalization and prospectively good operating performance,” Best explained. “An offsetting factor remains its relatively small size in a highly competitive operating environment.” Best added that it “believes that Russian Re’s risk-adjusted capitalization is improving as a result of stronger shareholders equity allowed by an increase in the value of Russian Re’s real estate in 2008 and current and prospective low to moderate growth in net written premiums.” In Best’s opinion, Russian Re’s risk-adjusted capital is likely to remain supportive of its business expansion plans over the next two years.

A.M. Best Co. has assigned a financial strength rating of ‘B’ (Fair) and an issuer credit rating of “bb+” to Kenya’s ZEP-RE (PTA Reinsurance Company), both with stable outlooks. “The ratings reflect ZEP-RE’s good level of risk-adjusted capitalization, developing business profile and improving risk management,” said Best. “An offsetting factor is its marginal underwriting performance.” Best explained that in its opinion,” ZEP-RE’s risk-adjusted capitalization is at a good level, following capital increases of $7.5 million in 2008 and full earnings retention in 2007. Additionally, ZEP-RE’s capital position has benefited from a reduction in credit risk, with a lower level of debtors and improved outward reinsurance securities.” Best believes that ZEP-RE’s “capital position is expected to remain stable, provided that growth in gross premiums written is controlled to 15 percent in each of the next two years, with minimum retained earnings of 75 percent of net profit.” Best added that the reinsurer’s “operating performance has been moderate with a pre tax profit of $5.2 million in 2007, mainly arising through investment income. Underwriting performance has been marginal with technical profits of approximately $1 million, mainly contributed by its non core life business.” In Best’s opinion, ZEP-RE’s “prudent underwriting and claims handling will result in a lower frequency of large claims during 2008, producing a loss ratio of 57 percent in 2008 (compared to 60 percent in 2007), with improved performance on its non-life risks, particularly in property. In addition, ZEP-RE has made considerable progress developing its risk management to ensure adequate controls are place.”

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