Ratings Roundup: Harbor Point Re, Travelers (UK), Sovag

November 4, 2009

Standard & Poor’s Ratings Services has revised its outlook on Bermuda-based reinsurer Harbor Point Re Ltd. and its U.S.-based subsidiary Harbor Point Reinsurance U.S. Inc. to stable from negative. S&P also affirmed the ‘A-‘ counterparty credit and financial strength ratings on both companies (together Harbor Point). “The change in Harbor Point’s outlook to stable reflects the fact that the group has met our expectations as laid out in our outlook published on Jan. 27, 2009 (see summary analysis on Harbor Point Re Ltd. And Harbor Point Reinsurance U.S. Inc.),” said the bulletin. “The group has reported a strong year-to-date combined ratio of 79 percent and return on revenue (ROR) of 30 percent,” said credit analyst Laline Carvalho. S&P also noted that Harbor Point’s operating results have been good since 2006 (its first full year of operations), particularly considering significant start-up costs in 2006 and 2007. The group reported a three-year (2006-2008) average combined ratio of 94 percent and ROR of 23 percent. Considering year-to-date 2009 operating results on an annualized basis, Harbor Point’s pro forma four-year combined ratio improves to 90 percent and ROR is strong at 25 percent. S&P also stressed that “other factors supporting the stable outlook include our view that Harbor Point’s 11 percent drop in net premium volume in 2008 was largely indicative of its willingness to let go of underpriced business at the expense of premium volume, and not of security concerns by clients and brokers after the switch, in January 2008, of its casualty writings to Harbor Point Re U.S. paper from Chubb paper (which had been used in 2006 and 2007 through a fronting arrangement with Chubb). S&P added that it believes “Harbor Point’s management has been successful in maintaining its position as a strong partner in the casualty reinsurance sector because of its long-standing relationships in this market. During the first nine months of 2009, the group had strong growth in casualty and specialty lines owing to new business opportunities in specific areas such as professional lines, non-standard-auto, and new specialty writings stemming from its recently established London office.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating (ICR) of “a+” of the UK-Based Travelers Insurance Company Limited (TIC), both with stable outlooks. Best said it expects TIC “to maintain excellent stand-alone risk-adjusted capitalization in 2009, supported by a moderate increase in shareholders’ funds from £506 million [$838 million] in 2008. In addition, the ratings factor explicit parental support in the form of a guarantee in respect of all TIC’s liabilities provided by St. Paul Fire and Marine Insurance Company, a subsidiary of its ultimate parent, The Travelers Companies, Inc.” Best also explained that a “reduction in TIC’s pre-tax profit is expected in 2009, from the £144 million [$238.5 million] achieved in 2008, largely due to the absence of a material release from prior year reserves (2008: £81 million [$134 million]).” In addition the rating agency also noted that, although rates are stabilizing, “rating conditions for TIC’s main lines of business in the United Kingdom and Ireland remain competitive. A solid net investment yield is anticipated in 2009, albeit lower than the 7 percent achieved in 2008, a result which benefited from unrealized investment gains of £32.7 million [54.15 million]. TIC has a strong position in the UK market as a specialist underwriter of commercial business and continues to expand its presence in Ireland.” Best sad that in its opinion, “the company is of strategic importance to its U.S.-domiciled ultimate parent as its means of access to these two markets. The company’s gross premiums written are expected to increase by approximately 10 percent in 2009 (2008: £316 million [$523.4 million]), driven by growth of its Irish personal lines business.”

A.M. Best Co. has placed the financial strength rating (FSR) of “B++” (Good) and the issuer credit rating (ICR) “bbb” of Germany’s SCHWARZMEER UND OSTSEE Versicherungs-Aktiengesellschaft SOVAG under review with developing implications. Best explained that it took the action “following the acquisition of 54.1 percent of SOVAG’s share capital by Volga Resources SICAV-SIF S.A., a Luxembourg-based investment fund. The transaction has been cleared by the German Federal Supervisory Authority (BaFin); however, it is still subject to approval from the German Anti-Trust Authority (Bundeskartellamt).” Best said the rating would remain under review pending completion of its analysis “of the impact of the new ownership on SOVAG.”

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