Ratings Recap: Navigators, AIG (So. Am.), Electro Re, Casiopea Re

May 28, 2009

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of Navigators Insurance Group, which is comprised of Navigators Insurance Company and its wholly owned and 100 percent reinsured subsidiary, Navigators Specialty Insurance Company. Best also affirmed the ICR of “bbb+”, the debt rating of “bbb+” on $125 million 7 percent of senior unsecured notes, due 2016 and the indicative ratings of “bbb-” on preferred securities, “bbb” on subordinated notes and “bbb+” on senior unsecured notes of Navigators’ publicly traded ultimate parent, The Navigators Group, Inc. The outlook for all ratings is stable. All companies are domiciled in New York, NY. Best said: “The ratings recognize Navigators’ leading position as a global provider of insurance to the marine sector through the platforms established by Lloyds and itself, its well diversified book of business, modest net wind storm exposure, solid level of capitalization and operating performance, as well as management’s conservative approach to underwriting and claims management.” However, best indicated that the group’s “entry into relatively new lines of business in recent years and somewhat elevated, although declining, dependence on reinsurance,” should be considered as offsetting factors. “Nevertheless, the financial flexibility of Navigators, Inc. is sufficient to offset these concerns. Navigators, Inc.’s financial leverage is a conservative 15 percent of debt-to-total tangible capital, with coverage ratios far exceeding A.M. Best’s requirements for the current rating level.” In addition Best said the rating outlook “anticipates Navigators and Navigators, Inc.’s continued strong earnings performance and strong capitalization.”

Fitch Ratings has affirmed its national scale Insurer Financial Strength (IFS) ratings on American International Group, Inc.’s Latin American subsidiaries. Fitch listed the following: Chile: La Interamericana Compania de Seguros Generales S.A. (LIG):
–National scale IFS affirmed at ‘AA+(chl)’ and revised its Outlook to Evolving from Stable. La Interamericana Compania de Seguros de Vida S.A. (LIV): –National scale IFS remains ‘AA+(chl)’; Rating Watch Evolving. El Salvador: AIG Union Y Desarrollo, S.A. y Filial – National scale IFS affirmed at ‘AA(slv)’ with Stable Outlook; AIG S.A. Seguros de Personas -National scale IFS affirmed at ‘AA-(slv)’ with Stable Outlook. “The ratings on LIG, AIG Union and AIG Personas continue to reflect net worth maintenance agreements provided by AIUO, which is a subsidiary of AIG,” said Fitch.

A.M. Best Co. has affirmed the financial strength rating of’ B+’ (Good) and the issuer credit rating (ICR) of “bbb-” of Luxembourg-based Electro Re S.A. , the reinsurance subsidiary of France’s Alcatel-Lucent, a leading telecommunications equipment manufacturer. The outlook on both ratings remains negative. “The ratings of Electro Re reflect a decrease in the company’s level of risk-adjusted capitalization, a recently volatile operating performance and concerns over the financial position and business profile of its parent, Alcatel-Lucent,” Best explained. “A partially mitigating factor is the anticipated recovery of risk-adjusted capitalization to a level in line with that of previous years.” Best also indicated that the “decreased level of risk-adjusted capitalization has been driven by a significant drop in the level of available capital in addition to increased capital requirements. A fall of approximately €30 million ($41.82 million) in the market value of investments (equal to around 15 percent of book value) reduced the level of available capital, while one relatively severe insured loss increased capital requirements.” Best said, however, that it “anticipates that Electro Re’s risk-adjusted capital position is likely to return toward levels similar to those experienced in previous years, given the likely release of reserves as the large claim made in 2008 is paid out. Electro Re’s recently volatile underwriting performance in addition to uncertainties over the company’s future business plans after 2009 result in A.M. Best anticipating a potentially volatile operating performance in 2009 and 2010.” The volatile operating performance “increases the level of risk-adjusted capitalization required for the current rating level,” said Best, “making it vital that capitalization improves as expected. Best is also concerned about the “long-term future of Alcatel-Lucent,” which it described as “somewhat uncertain,” thus placing a “downward pressure on Electro Re’s rating level. This downward pressure is partially mitigated by the fact that Electro Re’s investment policy is completely independent from that of its parent. However, any further deterioration in the financial position of Alcatel-Lucent could potentially result in the captive’s rating level being downgraded.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Luxembourg-based Casiopea Re S.A., the reinsurance company of Spain’s Telef√≥nica S.A. Best explained that the “revised outlook reflects the company’s solid level of risk-adjusted capitalization, stable underwriting performance and the increasing significance of Casiopea Re to Telef√≥nica, whose financial position is also improving.” Best also said it “believes that Casiopea Re’s level of risk-adjusted capitalization remains excellent and is well supported by a consistently profitable underwriting account. A change in investment profile during 2008, away from listed equities and towards intra-company loans and bonds, increased investment concentration risk and marginally decreased Casiopea Re’s level of risk-adjusted capitalization. However A.M. Best considers that it has remained supportive of the current rating level.

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