Ratings Recap: Tokio Millennium Re, Nissan Global, Asia Capital, ACRe

November 11, 2009

A.M. Best Co. has affirmed the financial strength rating of’ A+’ (Superior) and issuer credit rating of “aa-” of Bermuda-based Tokio Millennium Re Ltd. (TMR), both with stable outlooks. Best noted that TMR is a wholly owned subsidiary of Tokio Marine and Nichido Fire Insurance Company, Ltd. (TMNF), which is the main trading subsidiary of Tokio Marine Holdings, Inc. (Tokio Marine Group). All companies are domiciled in Tokyo, Japan, unless otherwise specified. “TMR remains strategically important to Tokio Marine Group’s overseas expansion initiative to geographically diversify the group’s aggregation of natural perils,” Best vontinued. “TMR benefits from the global recognition and balance sheet strength of TMNF. The ratings reflect TMR’s excellent financial strength, favorable operating performance over the last several years and its prudent risk management practices. The excellent financial strength also takes into consideration the historical implicit and explicit support provided by TMNF. In 2008, TMR was one of only a few companies in the Bermudian market to grow shareholders’ equity year over year, which left it well-positioned to take advantage of market opportunities in 2009. However Best indicated that “TMR’s exposure to low frequency, high severity catastrophic events, which could dampen profitability and/or inflict large losses on the company,” should be considered as offsetting factors. Nonetheless Best said TMR’s “low operating leverage as a result of its prudent risk posture substantially mitigates this risk, and the company also has expanded into different lines of business in order to stabilize its profitability.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based Nissan Global Reinsurance, Ltd. (NGRe) with stable outlooks. The ratings reflect “NGRe’s strong capitalization and conservative operating strategy,” said Best. “The ratings also consider the company’s critical role and favorable profile as part of the Nissan Motor Co. Ltd., as well as its excellent operating performance since its inception in 2005. NGRe is a single parent captive of Nissan Motor Co. Ltd., the seventh-largest automaker in the world and third-largest in Japan. NGRe operates two distinctive lines of business: (1) global P&C programs for Nissan including global property (U.S., Japan, Europe, Mexico and South Africa), U.S. workers’ compensation, U.S. and Japan product liability and marine transport, and (2) global platform for extended service contract (ESC) business. “NGRe benefits from the group’s extensive risk management and loss control programs, Best noted. As partially offsetting factors Best cited the “the significant exposures NGRe has to product liability, property and marine cargo claims. Additionally, the current deterioration in the financial markets and the decline in the profitability of automakers are expected to impact premium volumes and investment results.” But Best also indicated that the captive operates at “conservative underwriting leverage levels; however, it provides coverages with large limits, and its gross exposures per loss occurrence are therefore elevated.” In conclusion Best indicated that the “quality of the substantial financial resources and support available to the captive as part of the Nissan Motor Co. Ltd.” are well recognized.

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Asia Capital Reinsurance Malaysia Sdn Bhd (ACRM), both with stable outlooks. “The ratings reflect ACRM’s solid capitalization, prudent reserving practice and strong risk management capabilities,” said Best. “The initial capitalization of ACRM was $70 million. As demonstrated by Best’s Capital Adequacy Ratio, the company’s risk-adjusted capitalization is adequate to support its forecasted premium growth. ACRM’s major risk component is underwriting risk, while the investment risk is relatively small.” Best added that it believes that the company’s risk-adjusted capitalization “will be maintained at an adequate level in the coming three years. However, if actual performance causes ACRM to deviate from its business plan, it could create pressure on the company’s risk-adjusted capitalization. After more than two years of development, ACRM still reserved a significant amount of incurred but not reported (IBNR) claims for the portfolio of underwriting year 2007 as at June 30, 2009. A.M. Best believes that the company has a prudent reserving practice. Offsetting factors are the competitive reinsurance market and relatively high combined ratio driven by volatility in a growing book of business for a young company. ACRM recorded a combined ratio of 102.2 percent and 161.4 percent in 2008 and 2007, respectively. Due to the company’s unseasoned underwriting portfolio, a significant amount of the outstanding reserves are IBNR. ACRM’s underwriting profitability is still subject to future claims development.”

A.M. Best Co. has affirmed the financial strength ratings of ‘A-‘ (Excellent) and the issuer credit ratings (ICR) of “a-” of Singapore’s Asia Capital Reinsurance Group Pte. Ltd, ACR ReTakaful SEA Berhad and ACR ReTakaful MEA B.S.C. (c) of Bahrain. Best also affirmed the ICR of “bbb-” of ACR ReTakaful Holdings Limited of the United Arab Emirates. The outlook for the ratings is stable. In addition Best has assigned an ICR of “bbb-” to Singapore’s ACR Capital Holdings Pte, Ltd. The outlook assigned to the rating is stable. Best said its rating actions reflect ACR, ACR ReTakaful SEA and ACR ReTakaful MEA’s “solid capitalization and strong risk management capabilities. Best also acknowledged ACR’s prudent reserving practice, and indicated according to its “Capital Adequacy Ratio, ACR, ACR ReTakaful SEA and ACR ReTakaful MEA’s risk-adjusted capitalization levels are adequate to support their forecasted premium growth. ACR recorded a relatively high combined ratio driven by volatility in a growing book of business for a young company. If this trend continues, it could slow down the surplus growth and exert pressure on the company’s risk-adjusted capitalization.” However, Best also noted that “given the start-up status of ACR ReTakaful MEA and ACR ReTakaful SEA, the underwriting performance of these two companies remains to be seen,” and Best will closely monitor ACR, ACR ReTakaful SEA and ACR ReTakaful MEA’s overall profitability trends in the coming years.”

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