Ratings Roundup: Allianz (UK), Delvag, Glacier Re

July 22, 2009

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of “aa” of the UK-based Allianz Insurance plc (AZI), both with stable outlooks. “Allianz Holdings plc, AZI’s immediate holding company in the UK, is expected to maintain excellent consolidated risk-adjusted capitalization during 2009 and 2010, despite likely dividend payments to its parent company, Allianz Societas Europaea (Allianz SE),” Best explained. “AZI’s ratings continue to reflect reinsurance support provided by Allianz group subsidiaries and financial flexibility provided by Allianz SE, which maintains superior risk-adjusted capitalization.” Best also said it “anticipates a solid combined ratio in 2009 towards the upper end of the 95 percent to 100 percent range (2008: 99.7 percent), taking into account weak rating conditions for AZI’s core commercial lines of business. The company’s underwriting profit at year-end 2009 is likely to be supported by prior year reserve releases, albeit at a lower level than in 2008 (£ 201 million [$330 million]). A solid net investment yield is anticipated at a comparable level to the 5 percent achieved in 2008 (including realized and unrealized gains).” Best also stressed the fact that AZI “remains strategically important to Allianz SE as its dedicated general insurance operation in the UK market. The company has an excellent business profile as a leading underwriter of UK commercial and personal lines business.”

A.M. Best Co. has upgraded the financial strength rating to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating to “a-” from “bbb+” of Germany’s Delvag Luftfahrtversicherungs-AG (Delvag) and Delvag Rueckversicherungs-AG (Delvag Rueck), both with stable outlooks. Best said the “rating actions reflect Delvag’s improving risk-adjusted capitalization and consistently excellent operating performance. The ratings also factor Delvag’s role as the composite insurance captive of its ultimate parent, Lufthansa German Airlines. The ratings of Delvag Rueck benefit from a rating enhancement from the profit and loss absorption agreement with Delvag, its immediate parent.” Best added that it “expects risk-adjusted capitalization for both companies to continue improving prospectively due to limited forecasted growth and transfers to the equalization reserves. While the profit and loss absorption agreements in place limit the potential of earnings retention, they also provide significant balance sheet protection.” Although “Delvag continues to have a high dependence on reinsurance,” Best indicated that it “believes that Delvag’s credit risk remains limited as the high cession rate mainly relates to the group fleet business program, which is placed with highly rated reinsurers.” The rating agency also expects “Delvag to produce excellent pre-tax earnings, and noted that its ” disciplined underwriting and comprehensive reinsurance covers are expected to result in a stable claims experience prospectively. Delvag also benefits from low expense levels due to both high over-rider commissions and the high amount of business written either through Albatros (its captive broker) or directly.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Swiss-based Glacier Reinsurance AG and its subsidiary, Liechtenstein-based Glacier Insurance AG. The outlook on all of the ratings remains stable. “The ratings of Glacier Re reflect its excellent risk-adjusted capitalization, good anticipated underwriting performance and developing business profile,” Best explained. The ratings of Glacier Insurance continue to reflect reinsurance support in the form of a 95 percent quota share agreement with its parent company.” Best also indicated that it “expects Glacier Re to maintain excellent risk-adjusted capitalization in 2009 and 2010, supported by full retention of earnings and a reduction in total net premiums written.” However, Best also noted that, although the reinsurer’s risk-adjusted capitalization was weaker than anticipated at year-end 2008 due to the company’s catastrophe experience during the year, Best nonetheless “anticipates that the company’s decision to reduce premium income from property reinsurance business written in some territories will support strong improvement in 2009. The company’s capitalization has not been adversely affected by investment losses or impairments due to the highly conservative nature of its investment portfolio. Rate strengthening for Glacier Re’s catastrophe-exposed property and energy lines of business is expected to support a good technical profit in 2009, compared to a loss of $33 million in 2008, subject to normal catastrophe experience. The 2008 underwriting result was impacted by a significant gross loss of $100 million from Hurricane Ike” In addition Best pointed out that, in its opinion, “Glacier Re has a good developing business profile, particularly for its core European lines of business (expected to account for nearly 50 percent of total gross premiums written in 2009). The company’s diversification is likely to improve somewhat in 2009 as direct business written by Glacier Insurance is expected to account for an increased proportion of total consolidated premiums (over 25 percent anticipated in 2009, up from 22 percent in 2008).”

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