Ratings Roundup: Novae, DAS Legal

December 9, 2009

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and the issuer credit rating (ICR) to “bbb+” from “a-” of Novae Insurance Company Limited (NICL) and placed the ratings under review with negative implications. Best also placed the ICRs of “bbb” and “bbb-“of Novae Group plc and Novae Holdings Limited, respectively, under review with negative implications. In addition Best has placed under review with negative implications the debt ratings of “bbb-“on the £70 million ($114 million) subordinated notes due 2017 issued by Novae, and the debt ratings of “bbb-” on the $15 million senior unsecured floating rate notes due 2034, “bb+” on the $11 million subordinated floating rate notes due 2034 and “bbb-“on the $10 million senior unsecured floating rate notes due 2034, all issued by Novae Holdings. However, Best also indicated that the Syndicate Rating of ‘A’ (Excellent) and ICR of “a+” of Lloyd’s Syndicate 2007, which is managed by Novae Syndicates Limited (NSL), are unchanged at the Lloyd’s market level. All the Novae companies are domiciled in the United Kingdom.” The downgrading of NICL’s ratings follows Novae’s announcement that business currently underwritten by the company will be renewed into syndicate 2007,” best explained. The ratings will remain under review with negative implications while Best assesses management’s future plans for existing liabilities and the impact that the group’s capital restructuring will have on NICL. The ratings of Novae and Novae Holdings have been placed under review as Best said it “needs to evaluate the impact of the capital restructuring on the group’s consolidated risk-adjusted capitalization.”

Standard & Poor’s Ratings Services has revised the outlook on U.K.-based legal expenses insurer D.A.S. Legal Expenses Insurance Co. Ltd. (DAS UK) to negative from stable. S&P has also affirmed the long-term counterparty credit and insurer financial strength ratings at ‘A’. S&P said the “outlook revision reflects an increase in claims frequency in one of DAS UK’s main classes of business, personal non-motor. As a result, the company is strengthening reserves for this line.” The rating g agency indicated that it had “previously anticipated a modest profit, but these reserving actions will lead DAS UK to post a significant net loss for the year ending December 2009.” S&P added that the “ratings continue to reflect the company’s strategic importance to its ultimate parent, Munich Reinsurance Co. (AA-/Stable/–) and its good competitive position, offset by its moderate earnings track record and tight capital management. The company’s tight capital management with respect to regulatory and other requirements makes it vulnerable to a net loss.” Credit analyst Eoin Naughton added: “The negative outlook reflects Standard & Poor’s concerns that there may be further deterioration in the personal non-motor book, or that the issues which have affected this book could spread to DAS UK’s other business lines. “If the company needs to strengthen reserves further, the rating would likely be lowered.” S&P said it would “consider revising the outlook to stable if the company can demonstrate that the current level of reserving is sufficient, and that it can return to a level of profitability consistent with its ratings.” S&P expects a lower net loss in 2010, excluding any unusually large positive run off. It also anticipates “a return to profitability in 2011 as the benefits of actions taken to improve profitability are felt. Capital adequacy is expected to continue to support the rating, including through additions from the parent if required.”

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