Ratings Recap: Steamship Mutual, AXA Ireland, Hang Seng, Tapiola

April 8, 2009

Standard & Poor’s Ratings Services has assigned its ‘BBB+’ long-term counterparty credit and insurer financial strength ratings to U.K.-based marine insurer Steamship Mutual Underwriting Association Ltd. with a stable outlook. S&P said the “ratings reflect the company’s core status within the economic grouping collectively known as The Steamship Mutual (“Steamship” or “the club”; for more information, see “Steamship Mutual Underwriting Association (Bermuda) Ltd. (The),” published on RatingsDirect on Feb. 27, 2009), of which the principal operating entities include its sister direct underwriting company, the Bermuda-based Steamship Mutual Underwriting Association (Bermuda) Ltd. (BBB+/Stable/–), and Bermuda-based reinsurer Steamship Mutual Underwriting Association (Reinsurance) Ltd. The core status of Steamship Mutual Underwriting Association Ltd. is supported by the company’s integral role in the club’s strategy in providing its clients with the possibility of placing business with an insurer based in the EU, its extensive reinsurance arrangement with Steamship Mutual Underwriting Association (Bermuda) Ltd., as well as its strong integration into the club’s wider structure. Members of Steamship Mutual Underwriting Association Ltd. are automatically members of Steamship Mutual Underwriting Association (Bermuda) Ltd., beneficiaries of The Steamship Mutual Trust, as well as members of the International Group of Protection & Indemnity Clubs. The stable outlook on Steamship Mutual Underwriting Association Ltd. reflects the stable outlook on the club.”

Standard & Poor’s Ratings Services has revised its outlook on Dublin-based insurer AXA Insurance Ltd. (AXA Ireland) to negative from stable. S&P also affirmed the ‘BBB+’ long-term counterparty credit and insurer financial strength ratings on AXA Ireland. “The outlook revision reflects our view of the further weakening of AXA Ireland’s risk-adjusted and regulatory capital position due to the continued weakness in global investment markets,” explained credit analyst Neil Gosrani. S&P noted that in 2008, “shareholders’ equity reportedly almost halved to €114 million [$151.5 million], as the fall in value of equities, and to a lesser extent structured assets, resulted in total net unrealized losses of €69.2 million [$92 million], and a €101.6 million [$135 million] deficit in AXA Ireland’s closed defined-benefit pension scheme. Excluding this exceptional item, operating results were in line with our expectations in August 2008, when we downgraded AXA Ireland by a single notch.” In addition S&P indicated that the “ratings on AXA Ireland continue to reflect the implicit benefits of being a member of the AXA Group (AXA; core entities are rated AA/Negative/–) and good operating performance. Partially offsetting these strengths are marginal capitalization and the high degree of concentration in the very competitive Irish motor insurance market.” Gosrani added that the “negative outlook reflects our view that the ratings on AXA Ireland will likely be lowered if capital adequacy does not improve to a level more in line with the current ratings and closer to AXA Ireland’s own target of double the current regulatory minimum within the next 12 months.”

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Hong Kong-based Hang Seng Insurance Company Limited, both with stable outlooks. Best has also withdrawn the ratings at the company’s request and assigned an NR-4 to the FSR and an “nr” to the ICR. Best indicated the actions “reflect Hang Seng Insurance management’s decision to withdraw from A.M. Best’s interactive rating process.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of Finland’s Tapiola General Mutual Insurance Company, also known as Keskinainen Vakuutusyhtio Tapiola. The outlook for both ratings remains stable. “Best said: “Tapiola General’s capitalization remains strong, notwithstanding the company’s recent negative technical results and the impact of the financial turmoil on its investment portfolio, which has a relatively high exposure to equity markets and property. The company’s balance sheet strength is enhanced by its substantial claims equalization reserve (€524 million [$697 million] at year-end 2008), which Tapiola General is required to keep at a level consistent with its risk profile and solvency requirements, in accordance with Finnish insurance regulations.” Best also indicated that Tapiola General recorded a technical loss of €74.2 million ($98.7 million) in 2008 (€22.6 million [$30 million] in 2007) “as a consequence of a sharp increase in the frequency and severity of claims across its major lines of business and higher operating expenses. The company’s combined ratio deteriorated to 112 percent (103 percent in 2007). Tapiola General’s underwriting performance remained negative, even after taking into account the impact of mutuality rebates and the different treatment of discounted technical provisions under Finnish accounting standards.” However, Bes did say, that in its opinion, “the corrective measures currently implemented by the company are expected to lead to an improvement in technical performance in 2009-2010. The measures include premium rate increases and enhanced risk selection of corporate risks.” Best added that in its view “Tapiola General has an excellent business profile as the largest mutual insurer in Finland. After several years of expansion, the company has reached a market share of approximately 20 percent, corresponding to €649 million [$863 million] in gross premiums written in 2008.” Best also said it “expects Tapiola General’s premium income to increase by approximately 5 percent in 2009, thanks to a combination of higher premium rates and a moderate increase in the volume of business written. The company is likely to benefit from additional revenues and cross-selling opportunities offered by its banking subsidiary, Tapiola Bank Ltd, which specializes in retail banking services and housing mortgage lending.”

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