Ratings Roundup: Fortis, Patria Re, CIRe

June 5, 2009

Standard & Poor’s Rating Services said today that it affirmed its ‘A-‘ counterparty credit and financial strength ratings on Netherlands-based commercial lines insurer Fortis Corporate Insurance N.V. (FCI), but has maintained its negative outlook. S&P’s action follows the announcement that U.K.-based property casualty insurer and reinsurer Amlin PLC (BBB+/Stable/–) intends to acquire FCI [See IJ web site – https://www.insurancejournal.com/news/international/2009/06/04/101091.htm]. Completion of the transaction, which is expected before the end of July 2009, remains subject to the requisite regulatory and shareholder approvals. “The affirmation of the ratings on FCI reflects our view that its acquisition by Amlin, if successful, would remove the uncertainty surrounding FCI’s long-term ownership and strategy, and would reinforce FCI’s competitive position,” explained credit analyst Marie-Aude Salinas. S&P also said being acquired by Amlin would likely remove the uncertainty surrounding FCI’s ability to restore its strong capital adequacy by 2010. The rating agency also expects FCI’s efforts to improve its operating performance to benefit from the Amlin group’s proven underwriting and risk management record upon completion of this transaction. Salinas added that the “negative outlook reflects our assessment of the current pressure on FCI’s operating performance and the impact of disengaging the company from the Fortis group on FCI’s business position.” S&P indicated that it also expects “FCI’s re-underwriting, started in second-quarter 2008, to slow its exposure growth and result in improved operating performance in 2009 and 2010.” It also expects gross premiums written to decline 10 percent and the net combined ratio to recover to 100 percent in 2009. However, S&P also foresees underwriting earnings suffering from higher reinsurance costs and costs due to restructuring. It expects return on equity to recover to 15 percent and return on revenue to 10 percent in 2009, and the FCI will “restore strong capital adequacy by 2010.” In the future, S&P indicated: “Upon completion of the Amlin transaction, with all other factors remaining constant, we would expect to revise the outlook on FCI to stable, as we would view FCI as strategically important to the Amlin group under our group ratings methodology. We would cap the financial strength rating on FCI, as a strategically important entity of the Amlin group, at one notch below the ratings on core subsidiaries of the Amlin group. If the transaction is not completed, we may also consider lowering the rating on FCI if FCI misses our earnings expectations in 2009, or if capital adequacy further deteriorates, or if FCI’s competitive position weakens in 2009.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Mexico’s Reaseguradora Patria, S. A. B.(Patria Re), both with stable outlooks. “These rating actions reflect Patria Re’s favorable risk-adjusted capitalization, strong balance sheet, consistent underwriting performance in recent years and management’s local and regional market expertise,” said best. “Patria Re is a reinsurer in the Mexican and Latin American markets and is focused on the prudent management of its underwriting risk in these regions.” In addition, “Patria Re has established a strong niche position in Mexico and Latin America, which allows the company to selectively accept profitable business while maintaining a diversified product portfolio tailored to specific markets. This has resulted in favorable underwriting results in recent years, and Patria Re has been able to enhance its risk-adjusted capitalization.
Partially offsetting these strengths is Patria Re’s limited financial flexibility, high expense structure, the continuing volatility in local and global equity markets, which has resulted in reported net losses and negatively impacted the company’s earnings in 2008, and Patria Re’s exposure to frequent and severe weather-related losses.”

A.M. Best Co. has commented that the ratings of China International Reinsurance Company Limited (CIRe), which is based in Hong Kong, remain unchanged following the announcement of the proposed acquisition of The Ming An (Holdings) Company Limited (MAH) by CIRe’s immediate parent, China Insurance International Holdings Company Limited (CIIH). Best noted that, according to the statement issued May 22, CIIH intends to acquire a 47.8 percent stake in MAH from China Insurance H.K. (Holdings) Company Limited by issuing additional new shares. With its existing 3.54 percent share interest in MAH, CIIH will be the controlling shareholder upon completion of the stake acquisition. Subject to the satisfaction of several pre-conditions, CIIH intends to further privatize MAH through exchanging shares. Best said it “expects that the proposed transactions will put minimal strain on the overall capitalization of CIIH on a consolidated basis, given the low net premium leverage and the strong solvency level of the insurance subsidiaries under MAH at this time. Nonetheless, in view of the continual growth of CIIH’s existing subsidiaries in China—namely Tai Ping Life Insurance Company, Limited and The Tai Ping Insurance Company, Limited. The rating agency will continue to monitor the Company’s capital position.

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