S&P Affirms Ratings, Revises Outlook on Fortis, after Amlin Acquisition

July 23, 2009

Standard & Poor’s Ratings Services has revised its outlook to stable from negative on Netherlands-based commercial lines insurer Fortis Corporate Insurance N.V. (FCI), and affirmed its ‘A-‘ long-term counterparty credit and insurer financial strength ratings on the company.

S&P said the “outlook revision follows today’s announcement that U.K.-based property/casualty insurer and reinsurer Amlin PLC (BBB+/Stable/–) has completed its acquisition of FCI following the receipt of all regulatory and shareholder approvals.”

Credit analyst Marie-Aude Salinas explained: “Now that the transaction is complete, we view FCI as strategically important to the Amlin group under our group ratings methodology.” Therefore we cap the financial strength rating on FCI, as a strategically important entity of the Amlin group, at one notch below the rating on the core subsidiary of the Amlin group (Amlin Bermuda Ltd. – A/Stable/–).

S&P added that the affirmation of the ratings on FCI reflects its view that “FCI’s acquisition by Amlin substantially removes the uncertainty surrounding FCI’s long-term ownership and strategy, and reinforces FCI’s competitive position. Amlin’s proven strong underwriting capabilities should provide further momentum to FCI’s efforts to improve its operating performance and restore capital adequacy to a strong level by 2010. FCI’s performance in the first six months of 2009 shows progress in this respect.”

Salinas added: “The stable outlook reflects that on FCI’s parent, Amlin PLC. Since FCI is a strategically important subsidiary of Amlin PLC, the ratings and outlook on FCI will move in tandem with those on the group as a whole, and are capped at one notch lower than the ratings on Amlin’s core subsidiary.”

However S&P did note that, while it’s a remote possibility, there is a risk, which cannot be excluded, that the “ownership of FCI may be returned to the Dutch government or former Fortis shareholders if the legal claims made by several groups of those shareholders are successful. If this did transpire, we would consider removing any Amlin group support factored into the ratings on FCI and might lower the ratings as a result.”

S&P that it expects FCI’s re-underwriting, which started in the second-quarter of 2008, to slow its exposure growth and result in improved operating performance in 2009 and 2010. As a consequence the rating agency expects “gross premiums written to decline 10 percent and the net combined ratio to recover to 100 percent in 2009. Underwriting earnings are set to suffer from higher reinsurance costs and costs due to restructuring. We expect return on equity to recover to 15 percent and return on revenue of 10 percent in 2009. We also expect FCI to restore strong capital adequacy by 2010.”

Source: Standard & Poor’s – www.standardandpoors.com

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