Ratings Recap: Allianz, Swiss Re (Notes), Everest Re (Ireland), Civic

May 18, 2009

Standard & Poor’s Ratings Services issued a statement that its ratings and outlook on Germany’s Allianz SE (AZSE), currently ‘AA’/Stable/’A-1+’, and various core operating entities “are unaffected by the group’s marginal net income reported for first-quarter 2009.” S&P said its position “reflects our view of AZSE’s continued capital resilience and our expectation of improving quarterly results in 2009. We expect AZSE’s risk-based capital adequacy to have remained comfortably in the ‘A’ category. Moreover, we believe a comparably strong group solvency ratio of 159 percent at the end of March 2009 supports our view of AZSE’s relative capital strength. AZSE’s first-quarter earnings were slightly below our expectations, in our opinion. A reported net combined ratio of 98.5 percent in the non-life segment and muted investment results, particularly in life business, which recorded a new-business margin of negative 0.1 percent, translated into an overall reported €1.4 billion operating profit and €0.4 billion [$540 million] of net income from continued operations. We will continue to monitor the group’s performance against our key full-year targets, which include a €7.0 billion [$9.45 billion] operating profit and a €3.0 billion [$4.05 billion] net income (see ‘Allianz SE And Core Entities ‘AA/A-1+’ Ratings Affirmed On Comparative Capital And Earnings Resilience; Outlook Stable,” published on March 31, 2009, on RatingsDirect”).”

A.M. Best Co. has assigned debt ratings of “a+” to the forthcoming € 1.0 billion ($1.35 billion) and €600 million (USD 809 million) senior notes to be issued by Swiss Re Treasury (US) Corporation and guaranteed by Swiss Reinsurance Company Limited. The outlook for both ratings is stable. “The notes will be issued under Swiss Re’s European Medium-Term Note Program (EMTN), and the proceeds will be utilized for general corporate purposes,” Best noted. “.

A.M. Best Co. has assigned a financial strength rating of ‘A+’ (Superior) and an issuer credit rating of “aa-” to Everest Reinsurance (Ireland) Ltd. (ERIL), and has assigned a stable outlook to both ratings. Best explained: “ERIL will conduct reinsurance business in Ireland and throughout the European Union (EU) with a focus on providing property, casualty and motor classes of business on both a direct and broker basis.” The company is capitalized with approximately €200 million [$270 million] in common equity and is ultimately owned by the Bermuda-based Everest Re Group Ltd. “The assigned ratings reflect ERIL’s solid capitalization, reasonable business plan and continuation of a sound business strategy,” best continued. “Everest has been producing European business for decades through its representative offices in London and Brussels. ERIL will provide a European platform for established European business along with access to other EU members. In addition to sharing infrastructure and control systems ERIL also is protected by a guaranty agreement issued by lead operating company, Everest Reinsurance (Bermuda) Ltd. This agreement unconditionally guarantees payment of any undisputed ERIL obligations and is further enhanced by a contractual commitment to maintain a minimum surplus level for ERIL.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of New Zealand Local Government Insurance Corporation Limited (Civic Assurance) with a stable outlook. “The affirmations are based on Civic Assurance’s solid capitalization and consistent operating performance,” said Best. “The ratings also acknowledge the stability of the company’s client base.” In addition best noted that “despite the underwriting challenges in 2008, Civic Assurance’s capital and surplus remained solid at NZD 19.3 million (US $11.2 million). Although the company’s capital and surplus accumulation declined to 0.2 percent in 2008, due primarily to a less favorable operating performance and low earnings retention, its capital and surplus on average increased by 8.7 percent over the past five years.” Best added that in the near term it expects Civic Assurance’s capital accumulation to continue to be suppressed by a lower level of operating profitability from increasing competition and a lowered short-term investment yield. Nonetheless, Civic Assurance has been committed to maintaining adequate capitalization through earnings retention to support risk underwritten going forward.” Best pointed out that “Civic Assurance has been profitable since its inception; however, its operating earnings decreased to NZD 932 thousand ($540 thousand) in 2008 from NZD 1.9 million ($1.5 million) in 2007, due primarily to lower income from investment properties and less favorable loss experience. Notwithstanding the deteriorating loss experience over the past two years, stable premium income from its established client base and solid investment earnings from rental and fixed interest instruments continued to contribute to its overall profitability. However Best also indicated that these “positive rating factors are partially offset by the declining underwriting profitability, uncertainty in net premium retention and the limited growth in Civic Assurance’s designated market.” The main causes have been “increasing competition and unfavorable claims experience over the past two years.”

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