Ratings Recap: Argus, Leadway, Scandinavia

July 8, 2009

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘A’ (Excellent) and assigned issuer credit ratings (ICR) of “a-” to Argus Group Holdings Limited (AGH) and its subsidiaries, Argus Insurance Company Limited (AICL), Somers Isle Insurance Company Limited (SIIC) and Bermuda Life Insurance Company Limited (BLIC). Best has also revised the outlook for the FSR to negative from stable, while the outlook for the ICRs is also negative. Best has also assigned an ICR of “bbb-” to AGH with a negative outlook. All of the companies are domiciled in Bermuda. “The rating downgrades recognize the recent financial market turmoil that has resulted in BLIC’s investment product values severely declining globally, causing operating performance to further erode as spreads on products have compressed in response to falling values in the investment markets,” Best explained. “As the major investor for AGH, BLIC is directly affected by the change in asset values within the group’s portfolio, which can be seen in both BLIC’s and AGH’s reduced capital positions.” In addition best noted the “high visibility of these losses due to the recent change in reporting standards by AGH, which expresses the complete unrealized change in value of its assets through its income statement. Nonetheless, AGH’s current capital position does remain a concern as the global financial pressures continue to affect its portfolio and, in turn, BLIC’s. While a large portion of AGH’s investment losses stem from solid Bermudian-based investments in sectors supporting the island’s infrastructure, the same factors promoting these assets’ survivability also will bring about a slower return to previous values. Given that the overall group is challenged by the recent investment market turmoil, these pressures are partially offset by each subsidiary’s long standing participation in the domestic insurance market in Bermuda and an experienced management team that integrates each subsidiary’s role as part of AGH. AICL’s improved operating performance and strong capital position, as well as SIIC’s continued solid operating performance and capital position, further support the group’s position. The revised outlook reflects the influence of the recent financial market turmoil on AGH’s overall operating position and the challenges it faces.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B-‘ (Fair) from ‘B’ (Fair) and the issuer credit rating (ICR) to “bb-” from “bb+” of Nigeria’s Leadway Assurance Company Limited with a stable outlook for both ratings. “The rating action reflects Leadway’s reduced risk-adjusted capitalization, declining operating performance and competitive operating environment partly due to the stressed economic conditions in Nigeria,” said Best. The rating agency added that in its opinion, “Leadway’s current and prospective risk-adjusted capitalization is significantly reduced and is not likely to remain supportive of its growth plans. This follows a reduction in capitalization in 2008, resulting from the impact of unrealized losses on its shareholder funds, which, in A.M Best’s opinion, partly reflects higher risk-taking on the company’s investment strategy. Leadway’s shareholder funds, which were heavily invested in equities, declined by 32 percent to NGN 12.5 billion [$843 million] in 2008.” Best added that while Leadway’s capitalization “remains satisfactory for its current book,” Best believes that this “would be significantly impacted if Leadway grows its business in line with its projections.” In addition, Best said it “believes that Leadway’s investment strategy is not likely to switch to less volatile asset classes in 2009, resulting in continued exposure of its capital to further decline if market conditions remain volatile.

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘C++’ (Weak) from ‘B’ (Fair) and the issuer credit rating (ICR) to “b+” from “bb+” of Russia’s Scandinavia Insurance Company Limited Liability Company “following the arbitration process, concerning major disputes over the assets of the company. Best subsequently withdrew the ratings at the company’s request and assigned a category NR-4 to the FSR and an “nr” to the ICR.

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