Ratings Roundup: Ocidental Companhia, First Capital, HSBC, NEMI

January 22, 2009

Standard & Poor’s Ratings Services has placed its ‘BBB+’ long-term counterparty credit and insurer financial strength ratings on Ocidental Companhia Portuguesa de Seguros de Vida, S.A., Ocidental Companhia Portuguesa de Seguros, S.A., and Companhia Portuguesa de Seguros de Saúde, S.A.–the operating companies of Portugal-based Millenniumbcp-Fortis Grupo Segurador S.G.P.S. S.A. (MFGS)–on CreditWatch with developing implications. S&P explained that the “CreditWatch placement on MFGS reflects the uncertainty surrounding the developments in the entity’s parent, Fortis group (Fortis; holding companies Fortis SA/NV and Fortis N.V. are rated BBB-/Watch Dev/A-3).” Credit analyst Anna Glennmar added: “To resolve the CreditWatch placement, we need to assess the new structure of the Fortis group, and specifically MFGS’s role within the group. We expect this information to become clearer within the next three months.” The ratings on MFGS might come under downward pressure if the revised structure of the Fortis group negatively affects the financial flexibility of MFGS. On the contrary, there might be upgrade potential should the revised structure of the Fortis group result in a stronger financial position of the holding companies and therefore increased financial flexibility for MFGS.

A.M. Best Co. has upgraded the financial strength rating to ‘A’ (Excellent) from ‘A-‘ (Excellent) and the issuer credit rating to “a” from “a-” of Singapore’s First Capital Insurance Limited with stable outlooks. Best said, “the ratings reflect the continued improvement in First Capital’s operating results, its superior risk-adjusted capitalization and disciplined underwriting strategy. The rating upgrade acknowledges the company’s ability to manage its premium growth and to strengthen its market profile in recent years.
First Capital consistently achieved a profitable underwriting margin in the last five years despite high premium growth. Underwriting income improved to SGD 31 million (USD 20.7 million) in 2007 from SGD 18 million (USD 12 million) in 2006 as a result of First Capital’s stable loss ratio and negative expense ratios due to the net commission and profit commission earned from the significant amount of premium ceded to reinsurers participating in First Capital’s outward proportional treaties.” Best added that in “view of its disciplined underwriting strategy,” it expects the company to maintain its strong underwriting profitability in the near future. Best also noted that “First Capital underwrites primarily domestic short-tail business. It is the market leader in the marine hull business, which accounted for 32 percent of its business portfolio in 2007. Notwithstanding the competitive market landscape, the company gradually and profitably expanded its market share from 1 percent in 2003 to 6 percent in 2007 as measured by gross premiums written in the domestic market.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” of Hong Kong-based HSBC Insurance (Asia) Limited with stable outlooks. At the same time Best withdrew the ratings at the company’s request and assigned an NR-4 to the FSR and an “nr” to the ICR. “This rating action reflects HSBC Insurance management’s decision to withdraw from A.M. Best’s interactive rating process,” said the announcement. “The ratings reflect HSBC Insurance’s solid market position, diversified insurance book and profitable underwriting performance. An offsetting factor is the continuous pressure on the underwriting margin due to intense market competition.”

Standard & Poor’s Ratings Services announced that it has maintained its ‘BB’ insurer financial strength and long-term counterparty credit ratings on Norway-based non-life insurer NEMI Forsikring ASA on CreditWatch, but has “revised the implications to developing from negative. The ratings on NEMI were originally placed on CreditWatch on Oct. 7, 2008, following a related action on NEMI’s parent, Iceland-based insurer Tryggingamidstödin hf. (TM; BB/Watch Neg/–).’ Credit analyst Peter McClean explained: “The revised CreditWatch placement follows an announcement on Jan. 20, 2009, by Oslo-based insurer, Protector Forsikring ASA (not rated), that it has entered into an agreement to acquire 100% of NEMI from TM. “The proposed transaction, which is subject to the completion of final due diligence and regulatory approvals, is expected to be completed by April 2009. The developing implications reflect the current lack of clarity in several areas, including the new owners’ intentions, pending completion of the transaction,” McClean. S&P also indicated that “following receipt of more detailed information, we shall be in a position to assess the potential financial strength of the merged company. If the transaction is not completed, the CreditWatch implications are likely to be revised to negative.”

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