Ratings Recap: UA Indemnity, Dubai Islamic, Eastern Re, Top Layer Re

A.M. Best Co. has assigned indicative debt ratings of “bbb” to senior unsecured debt, “bbb-” to subordinated securities and “bb+” to preferred stock, which may be issued under United America Indemnity, Ltd.’s (UAI) (Georgetown, Cayman Islands) recently filed shelf registration statement. Proceeds from securities issued under the shelf registration statement will be used for general corporate purposes. The outlook assigned to these ratings is stable. The issuer credit rating of “bbb” of UAI is unchanged. Best added: “Despite UAI’s disappointing fourth quarter 2008 earnings announcement (including $84 million of goodwill impairments) and sharp decline in its shareholders’ equity in 2008, its financial leverage ratios, as measured by its debt-to-equity and debt-to-capital ratios of approximately 19.3 percent and 16.2 percent, respectively, remain moderate and well within A.M. Best’s established guidelines for its current ratings.”

Standard & Poor’s Ratings Services has revised its outlook on Dubai-based insurer Dubai Islamic Insurance & Reinsurance Co. (Aman) to negative from stable. S&P also affirmed the ‘BBB’ long-term counterparty credit and insurer financial strength ratings on Aman. “The outlook revision reflects the increasing pressure on Aman’s risk-adjusted capital adequacy, arising mainly from the continuing decline in investment markets in the Gulf region,” explained credit analyst Lotfi Elbarhdadi. S&P said “Aman’s investment strategy exacerbated this pressure, as the company concentrated its investments in the Dubai equity markets, particularly in stocks of financial institutions and real estate operators, which suffered sharp declines over the past four months. Moreover, Aman’s gross premium income grew more than we had expected, by a substantial 66 percent (55 percent net of reinsurance). This has put further pressure on capital adequacy, as capital requirements have risen due to higher underwriting exposure, while adjusted capital has fallen. Meanwhile Aman has mitigated the capital needed to support its growing underwriting exposure by conservatively using reinsurance protection. Positive rating factors include Aman’s good competitive position, good technical earnings, and good financial flexibility. Based on the company’s preliminary results for 2008, Aman continues to deliver sound growth and business diversification, and its underwriting results appear to have improved compared with those of the past two years, evidencing good quality underwriting. We still consider Aman’s ability to access capital sources as good, due to its large retail shareholder base and the presence of supportive individual and institutional investors within the core shareholder base.”

A.M. Best Co. has commented that the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Eastern Re Ltd. S.P.C. ,which is based in Grand Cayman, Cayman Islands, are unchanged following Eastern Re’s announcement regarding the adverse loss reserve development of its specialty reinsurance segment, which was placed in run off in July, 2008. Best said: “Based on fourth quarter 2008 reserve development, Eastern Re increased its loss and loss adjustment expense reserves by $13.9 million, which represents the estimated impact as established by an independent actuary on the remaining open claims. The company, through the reallocation of capital, has increased the capitalization level of Eastern Re in an effort to bring it in line with the capitalization requirements of A.M. Best. Additionally, Eastern Re has provided A.M. Best with the strategy and more conservative documentation standards regarding this book of business for monitoring claims and reserve issues going forward.”

Standard & Poor’s Ratings Services has revised its outlook on Top Layer Reinsurance Ltd. to negative from stable. S&P has also affirmed its ‘AA’ counterparty and financial strength ratings on the company. “We revised the outlook to negative because we revised the outlook on State Farm Mutual Automobile Insurance Co. (AA/Negative/–) to negative,” explained credit analyst Taoufik Gharib. S&P noted that Top Layer Re is a 50-50 joint venture between State Farm and Renaissance Reinsurance Ltd. (AA-/Stable/–). A $4 billion capital structure supports Top Layer Re’s underwriting and operations. The underpinning is a $3.9 billion retrocessional stop-loss agreement from State Farm that is enhanced via a cut-through clause to Top Layer Re’s policyholders in the event Top Layer Re becomes insolvent. In addition to funded capital of about $51 million at year-end 2008, Top Layer Re has access to $75 million of irrevocable collateralized letters of credit if a major loss occurs.