Ratings Roundup: Oman, SNS REAAL, Caribbean Alliance

December 7, 2009

Standard & Poor’s Ratings Services has lowered its long-term counterparty credit and insurer financial strength ratings on United Arab Emirates (UAE)-based composite insurer Oman Insurance Co. (PSC) to ‘BBB’ from ‘BBB+’. The ratings remain on CreditWatch with negative implications, where they were placed on Nov. 27, 2009. S&P said the action “follows the downgrade of Oman Insurance’s parent, UAE-based Mashreqbank (BBB/Watch Neg/A-2), on Dec. 2, 2009. Credit analyst Nigel Bond added: “We expect to resolve the CreditWatch status of Oman Insurance within the next three months, in line with the CreditWatch resolution of Mashreqbank.” If there is no change in Oman Insurance’s stand-alone credit profile, which is one notch higher than its ratings, the resolution of the CreditWatch on Mashreqbank will be directly reflected in the ratings on Oman Insurance.

Standard & Poor’s Ratings Services has lowered its long-term counterparty credit ratings on Netherlands-based bancassurance group SNS REAAL N.V. and its core insurance holding company REAAL Verzekeringen N.V. to ‘BBB+’ from ‘A-‘. The ‘A-2’ short-term ratings were affirmed. S&P also lowered the ratings on SNS REAAL’s other core subsidiaries–SNS Bank N.V., and insurance operations SRLEV N.V. (formerly REAAL Levensverzekeringen N.V.) and REAAL Schadeverzekeringen N.V.to ‘A-/A-2’ from ‘A/A-1’. The outlook on all entities is stable. “The rating action is a result of our expectation that profitability at SNS Bank will continue to be relatively weak as a result of elevated credit losses from its property finance and retail banking activities, combined with a tight net interest margin from elevated funding costs,” explained credit analyst Claire Curtin. S&P added that the ratings on the SNS REAAL group of companies “reflect our view of the combined financial strength of the group’s banking and insurance operations. Credit analyst Paul Bradley added: “The ratings on SRLEV N.V. and REAAL Schadeverzekeringen N.V. reflect their status as core operating entities of both REAAL Verzekeringen N.V. and the SNS REAAL group, their strong competitive position, and strong capitalization. Offsetting these is the delayed realization of value from recent acquisitions in the current challenging environment and, consequently, operating performance that remains below our medium-term expectations.” The lower ratings on SNS REAAL and REAAL Verzekeringen (compared with the group’s operating entities) “reflect their status as nonoperational holding companies,” S&P continued. “As such, their debt-servicing capabilities are almost wholly dependent on distributions from their subsidiaries.” The rating agency explained that the “stable outlook on SNS REAAL and its core subsidiaries reflects our view of the combined financial strength of the group. SNS Bank’s earnings are likely to remain under pressure in 2010 because of continued high impairments at SPF, a low net interest margin, and a modest rise in mortgage impairments from a low base. Nevertheless, we consider that the group will gain a stable base from which to tackle these pressures on bank earnings from its risk mitigation activities in its insurance operations, the sound capital position of its insurance subsidiaries (and proven capital fungibility between banking and insurance), and cost savings generated by ongoing successful integration of recent acquisitions. The ratings could be lowered if impairments materially eroded bank capitalization, if the bank’s funding and liquidity position weakened, if the bank’s net interest margin came under sustained pressure in 2010, or if the integration of the insurance operations falls significantly behind schedule, thus delaying further recovery of insurance operating performance. Positive rating action could occur if bank and insurance profitability materially outperforms our expectations.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Caribbean Alliance Insurance Company Limited (CAI), which is based in Antigua and Barbuda. The outlook for both ratings is stable. “The ratings are based on CAI’s continued solid capitalization, favorable operating performance and conservative underwriting strategy,” said Best. “The ratings also recognize management’s regional Eastern Caribbean expertise and solid risk management program. These favorable aspects are based on the company’s established underwriting guidelines and systems that control aggregates and limit exposures. In addition, catastrophe risk is mitigated by CAI’s efficient reinsurance program, which protects its capital from both the frequency and severity of events. CAI’s insurance operations are complemented by an investment portfolio that remains relatively risk free with all cash invested in either bank or short-term deposits. However, some European bank deposits are subject to foreign exchange risk.” However CAI’s “dependence on reinsurance and geographic concentration of risk,” should be considered as offsetting factors. “As an Eastern Caribbean insurance provider, the company is exposed to frequent and severe weather-related events. CAI also operates within a challenging market, which has become increasingly competitive as local insurers are challenged by larger companies to maintain market share,” Best concluded.

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