Ratings Recap: Singapore Re, AGF, Ansvar, White Mountains Re, Oriental, Jupiter

October 13, 2009

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Singapore Reinsurance Corporation Limited, both with stable outlooks. The ratings reflect Singapore Re’s “superior risk-adjusted capitalization level, increasing presence in overseas markets and highly liquid investment portfolio” said Best. The reinsurer’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), “remained superior despite a 14.8 percent decrease in capital and surplus in 2008. The decrease was mainly attributed to the impairment losses on investments. Singapore Re has a more diversified underwriting portfolio when compared to its portfolio prior to 2004. In response to the termination of the voluntary cession, which caused a substantial decrease in gross premiums written (GPW) in 2005, the company has expanded its business in select overseas markets, particularly China and India, in recent years. As a result, the overseas business contributed approximately 31 percent of Singapore Re’s total GPW in 2008. Singapore Re has a highly liquid investment portfolio, with cash and deposits and fixed income securities comprising nearly 69 percent of its total assets in 2008. The bond portfolio was comprised of high quality bonds. However, Best indicated that “a deteriorated underwriting performance, lack of sustainable premium growth drivers and intensified market competition,” should be considered as offsetting factors. Singapore Re suffered from losses attributable to severe winter snowstorms, the Sichuan Earthquake and Guangdong flooding in China in 2008. Additionally, the loss ratio deteriorated by 8.2 percent in 2008. Best did indicated that “given the capital buffer that existed,” it believes that Singapore Re’s “prevailing underwriting volatility is still manageable.” Nonetheless, Best added that it “remains cautious about Singapore Re’s underwriting profitability in its overseas portfolio and the impact on the company’s overall operating performance.

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+ (Superior) and the issuer credit rating (ICR) of “aa” of Allianz IARD (formerly Assurances Generales de France IART)) and Allianz Vie (formerly Assurances Generales de France Vie), the main subsidiaries of Assurances Generales de France SA (AGF SA). The ICR and debt ratings of AGF SA remain unchanged. The outlook on all ratings remains stable. The ratings for Allianz IARD and Allianz VIE reflect the implicit support of Allianz SE, which owns 100 percent of AGF SA. Best said that in its opinion, “Allianz IARD and Allianz Vie have suffered from declining economic and challenging market conditions in 2008 and 2009. During 2008, the capital position deteriorated for Allianz Vie, which has seen a sharp decline in the value of in-force business (VIF), while Allianz IARD has maintained a stable capital position.” Best added that it “believes that AGF SA’s dividend policy and investment performance are likely to be the main drivers for the companies’ capitalisation for 2009.” Furthermore, the companies are facing increased pressure on performance and maintaining their market position and profile. Best said it expects Allianz IARD “to have an underwriting loss in 2009 resulting from high catastrophe losses in the first quarter, pushing its combined ratio above 100 percent.” Allianz Vie’s performance has suffered from the downturn of investment markets, coinciding with a reduction in demand for traditional life insurance products for 2009. In the future Best forecast a “challenging climate over the next two years with both entities expecting a reduction in premiums written in 2009. A renewed strategic focus in 2010 is likely to be adopted following the rebranding into the Allianz group.” Best expects Allianz IARD and Allianz Vie to maintain their strong positions in France and their profitability to improve in 2010.

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Australia’s Ansvar Insurance Limited, both with stable outlooks. The ratings reflect Ansvar’s “adequate stand-alone risk-adjusted capitalization and conservative investment philosophy.” Ansvar’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is commensurate with its ratings. The company’s net premium leverage strengthened moderately, which is attributable to profitable operating earnings with organic growth in net premiums written in 2008. Best also noted that the “company’s conservative investment philosophy has seen the company invest predominantly in cash and bonds, resulting in an overall net investment yield of 6.2 percent in 2008. Consistent growth in invested asset base and a favorable interest rate environment have resulted in positive growth of net investment income over the past five years. The decline in equity markets in 2008 had a minimal impact on Ansvar.” As offsetting factors Best noted the company’s “volatile operating performance and its exposure to softening premium rates in its major business lines.” Ansvar’s operating performance has been pressured due predominantly to an increasing trend of claims and expenses. The continuing market competition has seen a softening of premium rates in most lines of business, which resulted in an underwriting loss in fiscal year 2008. Given that moderate premium rate increases have been enacted, Best said it “expects that Ansvar’s operating performance will remain modest in the near term.”

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” and assigned a NR-5 (Not Formally Followed) to the FSR and a “nr” to the ICR of White Mountains Re Bermuda Ltd. (WMRe Bermuda), a subsidiary of White Mountains Re Group, Ltd., which is a subsidiary of White Mountains Insurance Group, Ltd. All the above companies are domiciled in Hamilton, Bermuda. Best explained that in July 2009, White Mountains Re announced that it would reorganize its reinsurance operations whereby the in-force business and infrastructure of WMRe Bermuda would be transferred to its affiliate, Sirius International Insurance Corporation, which is based in Stockholm, Sweden, with a branch office in Bermuda to maintain the group’s presence in the Bermuda marketplace. WMRe Bermuda’s loss exposures have been retro ceded to WMRe Sirius and upon regulatory approval, WMRe Bermuda will be contributed to WMRe Sirius and in run off. At this time, the remaining liabilities within WMRe Bermuda are not material to the overall organization; and consequently, the ratings have been withdrawn.

A.M. Best Co. has revised the outlook to negative from stable and affirmed the issuer credit rating(ICR) of “bbb+” of India’s The Oriental Insurance Company Limited. Best also affirmed Oriental’s financial strength rating of ‘B++’ (Good). The outlook for this rating remains stable. Best explained that the revised outlook for the ICR “reflects the adverse impact of the economic turmoil on Oriental’s adjusted capital and surplus, which decreased by 38 percent in 2008-09 due predominantly to decreases in the company’s fair value reserves account.” Despite the improvement of adjusted capital and surplus following the recovery of the Indian equity market in the first quarter of 2009, Best said it “remains concerned with the variation in capitalization, which is largely the result of the volatile equity market. Over 50 percent of Oriental’s invested assets are in Indian equities. The ratings also reflect Oriental’s poor underwriting performance, whereby the average combined ratio was 113.7 percent for the five years to fiscal year 2008-09. Over the past three years, the combined ratio continuously trended upward and was 134 percent in fiscal year 2008-09.” In addition Best cited the “influx of competitors since the liberalization of the Indian insurance market in 1999,” which “has increasingly exerted pressure on the market share of public sector insurers. The market share of private companies in terms of direct premiums written was approximately 41 percent as of March 31, 2009. It will be a challenge for Oriental to maintain its market share and to make an underwriting profit in this competitive market environment. On a positive note, Oriental has a strong presence in the Indian insurance market. In terms of direct premiums written, the company has maintained its position as one of the top four general insurers, with a market share of 13 percent in fiscal year 2008-09. The company’s market share, along with that of other public sector insurers, has generally exhibited a significant negative trend over the past few years. However, this negative trend is showing signs of easing, following the creation of the commercial motor third party liability pool.” The ongoing organizational transformation exercise is expected to improve the efficiency and effectiveness of Oriental, which will increase its competitiveness. While significant short-term improvements in operating results are not expected, Best said it “believes that the transformation process provides Oriental with the foundation for future profitability.”

Standard & Poor’s Ratings Services has affirmed its long-term counterparty and insurer financial strength ratings on Guernsey-based Jupiter Insurance Ltd. with a stable outlook. “Jupiter, the wholly owned captive insurer of U.K.-based oil major BP PLC (BP; AA/Stable/A-1+), qualifies as a captive insurer under our captive methodology and as such is rated at a level commensurate with its parent,” explained credit analyst Natasha Tansey. S&P noted that as BP’s sole active captive insurer, Jupiter forms an integral part of BP’s risk management strategy. Jupiter insures only BP risks, or a share up to a maximum of BP’s equity share for joint ventures. Jupiter depends on BP, independent broker analysis, and the underwriting views of highly rated insurers for the preservation of its competitive position. Jupiter relies on BP for its financial flexibility. “The ratings and outlook on Jupiter will be determined by those on the parent for as long as Jupiter continues to qualify as a captive insurer under our criteria,” Tansey added.

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