Ratings Recap: Starr Surplus, Wethaq, Unity Re, Ansvar

October 1, 2009

A.M. Best Co. has assigned a financial strength rating of ‘A’ (Excellent) and an issuer credit rating of “a” to Chicago-based Starr Surplus Lines Insurance Company, a wholly owned subsidiary of Bermuda-based Starr Insurance & Reinsurance Limited and an indirect wholly owned subsidiary of Starr International Company, Inc. (Starr International) (Panama), a private investment holding company. The outlook assigned to both ratings is stable. “The ratings reflect Starr Surplus Lines’ sound business plan, solid risk-adjusted capital and the explicit support provided by an intercompany reinsurance agreement with Starr International Insurance. Starr Surplus Lines plans on writing property/casualty lines of business on an excess and surplus lines basis and also may participate in some quota share reinsurance. Primarily, business is generated through a group of specialized insurance agency subsidiaries of Starr Underwriting Agencies, LLC (Starr Underwriting, USA), a subsidiary of C.V. Starr & Co., Inc. Starr Surplus Lines benefits from management, underwriting, claims handling and the loss control expertise provided by the Starr Underwriting USA agencies. As a licensed non-admitted carrier, Starr Surplus Lines provides Starr International’s property/casualty operations with enhanced flexibility in both rate and form.” However, Best indicated that “the execution risk associated with expanding operations, the potential impact of current soft market conditions and the reduction in Starr International’s shareholders’ equity due to realized and unrealized investment losses in 2008,” should be taken into account as offsetting factors. “While Starr Surplus Lines has established relationships with several key participants in its target markets, its ability to build and maintain market share will have to be proven over time.” Best said it would continue to “closely monitor performance against its stated business plan. Any material negative deviations in terms of management, earnings, capitalization or risk profile could result in downward pressure on the assigned ratings.”

Standard & Poor’s Ratings Services has lowered its long-term counterparty credit and insurer financial strength ratings on Kuwait-based Wethaq Takaful Insurance Co. K.S.C. (Closed) to ‘BB’ from ‘BB+’. S&P also removed these ratings from CreditWatch with negative implications, where they were placed on May 27, 2009. The outlook is negative. “The rating action reflects both the uncertainties regarding the impact of the troubles at parent Investment Dar (Dar) on Wethaq, and Wethaq’s weakening financial and business profile,” explained credit analyst Lotfi Elbarhdadi. S&P said the “downgrade also reflects Wethaq’s marginal stand-alone financial strength owing to its marginal competitive position and aggressive investment strategy. Factors supporting the rating are good risk-based capital adequacy and adequate operating performance. Elbarhdadi added that the “negative outlook reflects remaining pressure on Wethaq’s financial and business profile at the current ratings level. S&P’s expects “Wethaq’s competitive position to remain marginal, suffering from stiff competition. In addition, uncertainties remain regarding the outcome of troubles at Dar. We believe these are likely to have a negative impact on Wethaq’s business and financial profile, although in our opinion, Wethaq’s independent balance sheet and regulated insurance company status could minimize this impact. Our expectations factor in our opinion that Wethaq is likely to maintain good capitalization and an adequate operating performance. We expect Wethaq to maintain at least “good” capital adequacy based on our risk-adjusted capital adequacy criteria. The company should post a 105 percent to 110 percent net combined ratio in 2009. Finally, Wethaq should post flat growth in 2009 compared with 2008. We would lower the rating if the company does not reach the above-mentioned targets in 2009, or if the outcome of its parent’s restructuring is more negative than we expect. We may revise the outlook to stable if Wethaq exceeds the above targets, and ultimately survives its parent’s troubles financially and operationally unscathed.”

Standard & Poor’s Ratings Services has revised its outlook on Moscow-based reinsurer Unity Re to positive from stable. The ‘BB-‘ long-term counterparty credit and insurer financial strength ratings and ‘ruAA-‘ Russia national scale rating were affirmed. “The ratings reflect the company’s improving competitive position, good capitalization, strong results from insurance business, and good quality of investment portfolio instruments,” noted credit analyst Victor Nikolskiy. However, S&P noted that these “positive factors are partly offset by the high industry risk of operating in the Russian Federation (foreign currency BBB/Negative/A-3; local currency BBB+/Negative/A-2; Russia national scale (‘ruAAA’), combined with Unity Re’s small size and still-limited franchise, and its volatile concentrations and high currency risk in the investment portfolio. In addition the rating agency explained that the “positive outlook reflects our expectation that Unity Re will further enhance its competitive position through growth in premiums and number of risks and greater portfolio diversification while maintaining good levels of operating performance. We would also expect Unity Re’s risk-based capital adequacy to stay at least at a very strong level, reflecting limited risk appetite both in insurance and investments.” Nikolskiy indicated S&P “would consider positive rating actions if the company further strengthens its competitive advantages while delivering consistently good operating performance, as well as maintaining very strong risk-based capital adequacy and a good-quality investment portfolio. We would consider revising the outlook to stable if the company’s competitive advantages, earnings, capitalization, or investment portfolio quality deteriorate.

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of New Zealand’s Ansvar Insurance Limited, both with stable outlooks. “The ratings reflect Ansvar Insurance’s supportive risk-adjusted capitalization and stable business profile in the niche markets of faith, education and community care groups in New Zealand,” said Best. “As at fiscal year-end 2008, Ansvar Insurance continued to maintain a level of capitalization that is supportive of its ratings. Although its risk-adjusted capitalization declined slightly for the current year primarily due to an increase in underwriting risk, the notable growth in premium revenue of 16 percent in 2008 was mostly attributed to rate increases and improvement on lapse experience. Commencing in fiscal year 2009, Ansvar Insurance will begin to pay a target annual dividend to its immediate parent, Ansvar Insurance Limited (Australia), subject to an evaluation of Ansvar Insurance’s financial condition, operating result and liquidity requirement. As a strategically important subsidiary of its ultimate parent, Ecclesiastical Insurance Office plc, Ansvar Insurance has established a strong presence in its niche markets, focusing on its commercial portfolio (represented by 60 percent of the company’s gross premium revenue in 2008). Offsetting rating factors include the company’s volatile underwriting performance and a lowered short-term investment yield.”

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