Ratings: Ocaso, HSB Engineering, Accident & General, Consumer Services, Royal Bank of Canada

July 16, 2009

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of “aa-” of Spain’s Ocaso, S.A. Seguros y Reaseguros, both with stable outlooks. “The ratings reflect the company’s superior risk-based capitalization, excellent operating performance and strong business profile,” said Best. “Partially offsetting these factors are the dependence on the funeral expenses business line and the exposure to interest rate risk for the life portfolio. Ocaso’s risk-based capitalization remains superior, having benefited from significant profit retention in recent years. Ocaso’s capitalization is further supported by the full coverage of catastrophic events in Spain (reinsured by a governmental company) and by the prudent investment strategy, with investments mainly concentrated in fixed income securities (both government and high quality corporate), only marginally affected by the financial markets crisis. Ocaso’s profitability is strong, driven by the limited underwriting risk and low volatility of its funeral expenses portfolio, and good and improving technical results in other lines of business, especially accidents and assistance, with the non-life combined ratio (CoR) below 90 percent.

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating (ICR) of “aa-” of the UK-based HSB Engineering Insurance Limited (HSBEIL), both with stable outlooks. Best also said it “expects HSBEIL to maintain excellent consolidated risk-adjusted capitalization during 2009. The rating also factors HSBEIL’s strategic importance to its parent, The Hartford Steam Boiler Inspection and Insurance Company (HSB), as the HSB group’s principal source of geographical diversification and growth outside the United States. In addition, HSBEIL receives explicit support from the HSB group in the form of reinsurance protection.” Best added that it “believes HSBEIL will report solid pre-tax earnings in 2009, taking into account weak market conditions for its core business lines. In 2008, the company reported a good pre-tax profit of £16.6 million [$27.24 million], despite unrealized foreign exchange losses of approximately £4 million [$6.56 million]. The company has consistently recorded low loss ratios, supported by its extensive engineering expertise. Best noted that HSBEIL “has a strong specialist business profile in the U.K. and Canadian engineering insurance sectors. The company benefits from its ownership of inspection and consultancy service provider HSB Haughton Engineering Insurance Services, which plays an active role in HSBEIL’s underwriting and claims management.”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Accident & General Insurance Company Ltd. (AGI) of the Cayman Islands with stable outlooks. Best said the “ratings reflect the company’s excellent capitalization levels, solid operating performance, experienced management team, niche market profile and extensive risk management and safety programs. Partially offsetting these positive rating factors are the concentration of risk associated with a specific focus on recreational divers and relatively high retention levels relative to surplus. AGI has an extensive risk management program in place, focusing on diver safety, training and education. The company works closely with training agencies to provide training and educational workshops. Certified training instructors are required to take rigorous written and physical examinations in order to receive their certification or C-Card. The guidelines are strict and must be complied with or the instructor could potentially lose their license and liability coverage. The company has a preferred provider network in place globally. The network ensures that the diver receives the necessary medical treatment, including the use of a hyperbaric chamber if required.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of New Zealand’s Consumer Insurance Services Limited (CISL) with stable outlooks. “The ratings reflect CISL’s consistent operating profitability and solid capitalization,” Best explained. “The ratings also consider Fisher and Paykel Finance Limited’s (F&P Finance) strategic reorganization and its impact on CISL’s financial prospects and business profile. F&P Finance completed its strategic review in 2008 and decided to reorganize the group’s insurance operations structure. As a result of the reorganization, Credit & General Insurance Limited (CGIL) and a portfolio of warranty business from F&P Financial Services Limited were amalgamated into CISL. The amalgamation has resulted in a wider distribution channel. Prospectively, the development of the underwriting warranty business is expected to provide an additional source of income for CISL. Nonetheless, CISL’s new underwriting initiative may create underwriting volatility in its overall operating performance. CISL’s solid operating performance is supported by its improving underwriting margin, stable claims experience and consistent administrative earnings from its warranty business. Despite the pressure on the revenue stream of its credit insurance business (due to a change of preference on the underlying loan payment), the strategic reorganization increased CISL’s direct insurance business in 2009 and is expected to further increase in the near term.

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Barbados-based Royal Bank of Canada Insurance Company Ltd., both with stable outlooks. “RBCICL is a reinsurer that is ultimately owned by Royal Bank of Canada (RBC), the largest full service bank in Canada by assets. RBCICL primarily reinsures life/health insurance risks from unaffiliated international reinsurers as well as credit reinsurance risk from European reinsurers. RBCICL has added other lines of business with the purpose of diversifying its risk profile and participates as a treaty partner in life retrocession pools, trade credit pools and annuity longevity. RBCICL placed its property/casualty segment into run off following the 2005 hurricane season and has not received any new claims in several years. Best said the “ratings of RBCICL consider its leading market position relative to its peers, its solid risk-adjusted capitalization and increasing diversification of insurance risk. RBCICL’s financial strength and high profitability margins are based upon a sound business model, conservative investment practices and investments that are well matched to the company’s liability profile. The investment portfolio is made up of high quality sovereign, corporate and supranational fixed income products and there are no other-than-temporary-impairments in its investments.” Best added that it “believes that RBCICL is well positioned to continue growing premium volume over the long term,” even though it is subject to “fluctuations in financial markets, mortality rates and consumer confidence,” which “could adversely impact RBCICL’s shorter-term revenue and earnings trend.”

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