Ratings Recap: Dah Sing, Everest Re, Omnium, First Takaful, TATIL

September 4, 2009

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Bermuda-based Dah Sing Insurance Company Limited (DSI) with stable outlooks. “The ratings reflect DSI’s supportive level of risk-adjusted capitalization, improved operating earnings in 2008 and conservative investment allocation,” said Best. They also take into account “DSI management’s initiative in strengthening the company’s distribution network and operational support from the publicly held parent, Dah Sing Financial Holdings Limited (DSFH).DSI’s underwriting, asset and reinsurance risks are adequately supported by its overall level of capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Net premium leverage stood at 0.43 times for 2008 and is expected to remain at a conservative level through 2011.” Best added that “given management’s commitment to high retention of operating earnings,” it believes that the company’s capital level will be able to support its anticipated business growth over the next three years. The general liability (including employees’ compensation) portfolio accounted for 42 percent of DSI’s gross premiums written (GPW) for 2008. Other major lines of business include property damage (26 percent) and motor (24 percent). The company has maintained diversity of its premium source through agency, bancassurance and direct sales over the past two years. While DSI, as a wholly owned subsidiary of DSFH, has strengthened its agency network, it continues to grow its book by penetrating into the customer base of Dah Sing Banking Group. DSI maintains strong liquidity relative to risks underwritten. As at year-end 2008, the investment portfolio was comprised of cash and deposits (87 percent) and equities (13 percent). The company expects that this conservative investment strategy is likely to remain unchanged in the near term, somewhat minimizing its operating earnings volatility, especially during current volatile financial markets. These positive rating factors are offset by uncertainty associated with the quality of DSI’s insurance book as the portfolio expands. DSI’s underwriting performance improved in 2008 from 2007, with a combined ratio of 79.4 percent for 2008 (122.2 percent for 2007), averaging 93.5 percent during 2004-2008. In anticipation of DSI’s planned business growth, the limited track record in underwriting and the company’s relatively small operating scale could potentially challenge its overall operating stability. In view of the prevailing competitive insurance environment and current challenging economic conditions, A.M. Best remains cautious about DSI’s ability to achieve its targeted profitability over the midterm.

Standard & Poor’s Ratings Services Ha said that its ratings on Bermuda-based Everest Re Group Ltd.; its U.S.-based intermediary holding company, Everest Reinsurance Holdings Inc. (both rated BBB+/Stable/–); and the company’s core operating subsidiaries (all rated A+/Stable/–) – are not affected by the announcement of the retirement of Thomas J. Gallagher, Vice Chairman and Chief Underwriting Officer (CUO), effective Oct. 9, 2009. Gallagher, who joined Everest in 1975, has been Vice Chairman and CUO since Dec. 8, 2008. He previously served as President and Chief Operating Officer, a role that is currently held by Ralph E. Jones III.

Standard & Poor’s Ratings Services announced that it has revised its outlook on Bermuda-based Omnium Insurance and Reinsurance Co. Ltd. to negative from stable. S&P also affirmed its ‘AA’ long-term counterparty credit and insurer financial strength ratings on Omnium. “The outlook revision follows that on its parent, Total S.A.(Total; AA/Negative/A-1+),” stated credit analyst Natasha Tansey. “On Sept. 3, 2009, the outlook on Total was revised to negative from stable, due to expectations of a prolonged downturn in refining coupled with less conservative leverage policies, including shareholder distribution.” S&P added that the outlook revision on Omnium is not due to any changes to the stand-alone characteristics of the company. “As Omnium qualifies as a captive insurer under Standard & Poor’s rating criteria, it is rated the same as its parent,” added Ms. Tansey. The ratings on Omnium will therefore move in step with those on Total S.A.

Standard & Poor’s Ratings Services has assigned its ‘BBB-‘ long-term counterparty credit and financial strength ratings to Kuwait-based insurer First Takaful Insurance Co. with a stable outlook. “The rating reflects First Takaful’s good level of capitalization, good liquidity, and good profitability,” explained credit analyst Wolfgang Rief. “These positives are partly offset by the company’s aggressive and regionally concentrated investment policy, as well as by the company’s position in a relatively small and very competitive market.” S&P noted that the “company enjoys good capitalization. Capital adequacy is good according to Standard & Poor’s risk-adjusted capital model. The capital base sufficiently covers the heavy capital requirements stemming from locally concentrated equity investments and this, together with a relatively small capital base, makes First Takaful’s capital adequacy highly exposed to asset volatility. The company’s solvency position is currently pressured by the effects of the recent upheaval in the financial markets, reflected in a very high investment leverage level of 140 percent on Dec. 31, 2008. S&P added that a “positive rating action within the rating horizon appears unlikely at this stage, but might be achievable if the company outperforms the targets mentioned above. A negative rating action may be taken if the company is unable to meet the above mentioned capitalization targets and fails to adhere to its generally sound underwriting principles

A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Trinidad & Tobago Insurance Limited (TATIL) and has assigned a stable outlook to both ratings. “TATIL’s ratings were placed under review on June 24, 2009 due to delays surrounding receipt of critical information necessary to conclude A.M. Best’s rating process,” said the announcement. “However, TATIL has since complied with all requests for information. The affirmation of the ratings reflects TATIL’s historically profitable operating performance, adequate capitalization and support and commitment of its ultimate parent, ANSA McAL Limited (AMCL), one of the largest and most prominent regional groups. TATIL’s adherence to its prudent underwriting philosophy and conservative risk management strategy has historically resulted in favorable underwriting results. This has enabled the company to continue to record stable and consistent earnings, which has enhanced TATIL’s risk-adjusted capitalization. As an important strategic focus within the group’s financial services, the company has the support and commitment of AMCL and benefits from group synergies and access to AMCL’s considerable resources including information technology and financial and investment management. Partially offsetting these strengths is the geographic concentration of TATIL’s operations, the challenges to maintain market share and earnings in extremely competitive markets and the potential impact of increased exposure to weather-related events.”

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