Ratings Recap: Generali, XL, Blue Fin (Cat Bonds), Sun Hung Kai, B&B, Risk Re

March 27, 2009

Standard & Poor’s Ratings Services stated that its ratings on the core operating companies of Italy’s Generali Group (AA/Negative/–) are unaffected by the termination of the agreement relative to the joint venture Intesa Vita, which will not be renewed. “Alleanza Assicurazioni SpA (AA/Negative/–), a core operating company of the Generali group, announced the decision to cede to Intesa Sanpaolo SpA (AA-/Negative/A-1+) its share in the joint venture Intesa Vita,” said S&P. ” Following the termination of the joint venture, Generali group will no longer sell its insurance products through Intesa Vita branches. We will monitor the impact of the loss of the bancassurance agreement on the group’s competitive position, earnings, and capitalization. The ratings on Generali remain based on its very strong competitive position and earnings. S&P added that its ratings on Generali will be included in its review of European global multiline insurers announced on Feb. 24, 2009.

Standard & Poor’s Ratings Services announced that its ratings on XL Capital Ltd. XL’s operating subsidiaries are not affected by the company’s announcement that it is putting its U.K. and Irish life reinsurance businesses into runoff. “The announcement, part of XL’s publicly announced strategic review of its life reinsurance operatioistent with our expectation that management will continue to enhance its focus in the core property/casualty businesses while reducing noncore risks,” said S&P.

Standard & Poor’s Ratings Services has assigned its preliminary ‘BB-‘ credit rating to the $150 million class A principal at-risk variable-rate notes series 2 issued by Blue Fin Ltd. “The issued notes are exposed to U.S. hurricane and earthquake risks on a modeled loss basis,” S&P noted. “Blue Fin is a special-purpose company incorporated under the laws of Cayman Islands. Allianz Argos 14 GmbH, a wholly-owned subsidiary of Allianz SE and incorporated as a limited liability company, is the counterparty and is guaranteed by Allianz SE. Allianz SE is a global multiline insurance provider. It is proposing to enter into this transaction to receive a multi-year source of reinsurance capacity for certain U.S. hurricane and earthquake events. There will be no total return swap. The proceeds from the sale of the notes will be invested by the issuer in Kreditanstalt für Wiederaufbau’s (KfW) floating-rate notes with a final maturity of 3.75 years and puttable quarterly after the first six months. The quarterly put options are exercisable at par. KfW is currently rated AAA/Stable/A-1+. The risk analysis was carried out by AIR Worldwide Corp.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Hong Kong-based Sun Hung Kai Properties Insurance Limited (SHKPI) both with stable outlooks. “The ratings reflect SHKPI’s sustained favorable operating profitability, improved liquidity in its investment portfolio resulting in stronger risk-based capitalization, and niche distribution network,” said Best. “SHKPI has a good business niche and stable distribution network. As part of Sun Hung Kai Properties Group, one of the leading property development conglomerates publicly listed in Hong Kong, SHKPI benefits from its parent’s brand recognition and affiliations within the group, which has enabled it to maintain a quality book of business. SHKPI has consistently maintained a relatively low retention of risks written. Its historically favorable underwriting performance is driven by consistent improvement in the loss ratio and alleviation of acquisition costs through reinsurance commission income over the past five years to 2008. The company’s combined ratio stood at 40 percent for fiscal year 2008 and averaged 54 percent during fiscal years 2004-08.

A.M. Best Co. has affirmed the financial strength rating of ‘C++’ (Marginal) and the issuer credit rating (ICR) of “b+” of B&B Insurance Co., OJSI (B&B) of Belarus, both with stable outlooks. “The ratings reflect the company’s weak although improving risk-adjusted capitalisation, despite limited financial flexibility and moderate financial performance with volatile underwriting performance,” Best explained. The rating agency also said it “believes that B&B’s weak risk-adjusted capitalisation is improving mainly due to substantial unrealised capital gains on real estate.” Best also said it “believes that the improving capital position is supportive of projected growth of around 10 to 15 percent per annum in 2009 and 2010. The prospective risk-adjusted capitalization remains strained due to limited financial flexibility and high dividend payments (around 20 percent of retained profit).” In addition Best is of the opinion that despite the increased level of protection due to a newly adopted reinsurance program, the capital might be negatively impacted in the event of a major catastrophic event. There are also increased levels of credit risk, as from 2008 all outward reinsurance is transacted through a non-rated Belarusian National Reinsurance Organisation.”

A.M. Best Co. has upgraded the financial strength rating to ‘A+’ (Superior) from ‘A’ (Excellent) and the issuer credit rating to “aa-” from “a+” for the Cayman Islands-based Risk Reinsurance Limited (RRL). The outlook for both ratings is stable. “These ratings reflect RRL’s superior capitalization and balance sheet strength, profitable results, as well as the strategic role it performs as a captive insurance company for Transpower New Zealand Limited (Transpower), a state-owned enterprise (SOE) of the government of New Zealand,” Best explained. “Partially offsetting these positive factors is that the source of Transpower’s business is limited to hazards with the potential for a substantial loss for RRL. RRL cedes excess exposure layers to reinsurers with strong financial strength ratings, and it does not insure any third party risks. All investment assets are placed in a conservative and highly liquid portfolio consisting of cash equivalents and bonds. Investments are restricted to New Zealand, Australian and United States dollar denominated instruments.RRL benefits from the strong implied support of Transpower, which provides RRL with additional levels of financial flexibility. RRL’s management team is dedicated in ensuring its sound operation and financial security.”

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