S&P Affirms Insurance Australia Group’s Ratings; ERM is ‘Strong’

December 17, 2008

Standard & Poor’s Ratings Services has affirmed its ‘AA-‘ ratings on Insurance Australia Group Ltd.’s (IAG) core operating companies, including Insurance Australia Ltd. and IAG New Zealand Ltd., and its ‘A+’ ratings on IAG. The outlook on the group remains stable.

S&P added that it has “revised our enterprise risk management (ERM) assessment on IAG and IAG’s core operating companies to strong from excellent.”

“The affirmation reflects our view that the new management team–with its refocus on business fundamentals–is moving the organization in the right direction,” explained credit analyst Thomas Cherian. “The change in the ERM score indicates the state of IAG’s changing framework as well as some of IAG’s difficulties in dealing with overseas expansion risk, which are not consistent with an excellent framework.”

S&P said it had “affirmed the ratings because we expect a return-to-profitability on the strength of various cost-cutting measures from the business restructuring. Furthermore, premium increases implemented by the group will take effect in the coming year. The organization continues to enjoy a strong franchise in its domestic markets of Australia and New Zealand, although recent reported operating performance and the level of capitalization have been relative weaknesses of the rating.

“The stable outlook in part reflects our expectation of capital improvement, a reduction in exposure to under performing overseas markets, maintenance of market share, and improving profitability as the transformation takes effect on the group. Additional uncertainty remains due to the economic environment, capital markets, and weather, but is expected to be managed by the company. Any significant operational problems or large deterioration in claims, capital, or investment performance may trigger a downward rating action.”

Source: Standard & Poor’s – www.standardandpoors.com

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