Ratings Roundup: Compania Internacional, Oman Insurance

February 12, 2010

A.M. Best Co. has upgraded the issuer credit rating to “bbb+” from “bbb” and affirmed the financial strength rating of’ B++’ (Good) of Panamanian insurer Compania Internacional de Seguros S.A (CIS)., and has revised its outlook on both ratings to positive from stable. “The rating upgrade is based on CIS’ consistent favorable operating results, solid risk-based capitalization, local market expertise and sound risk management procedures,” said Best. “The company’s average combined ratio for the past five years remains below 100 percent, including results for both property/casualty and life/health business segments. CIS’ business mix is approximately 60 percent property/casualty and 40 percent life/health.” In addition best noted that CIS’ steady operating performance illustrates its ability to make sound underwriting decisions through its well established control and risk management systems. This process includes increased communication with agents, centralized operations and approvals, along with marketing locally accepted products. CIS’ operating performance is complemented by a stream of net investment income from its conservative investment portfolio. Risk-based capitalization remains fully supportive of the current ratings and outlook. The company’s capital level has grown at a compound annual growth rate of approximately 15 percent since 2005 and is expected to approach $60 million at the end of the next fiscal year.” Best explained that the positive outlook reflects its acknowledgement of CIS’ “improved performance and capitalization since 2005 and expectation that the company’s management team will continue this positive trend.” However, Best also indicated that these favorable factors are somewhat offset “by CIS’ challenge of operating in a relatively limited insurance market as well as operating in a country which A.M. Best considers to have an elevated level of country risk.”

Standard & Poor’s Ratings Services has updated the CreditWatch status of its ‘BBB’ long-term counterparty credit and insurer financial strength ratings on United Arab Emirates (UAE)-based composite insurer Oman Insurance Co. (PSC) following the application of its “segmented ratings criteria. The ratings remain on CreditWatch with negative implications, where they were placed on Nov. 27, 2009.” S&P explained that is part of our ongoing work on the current Oman Insurance CreditWatch analysis, “we have already concluded that the insurer meets our published criteria for the application of a ‘Segmented rating’ approach, as defined in our group rating criteria (see Group Methodology, published on April 22, 2009).” S&P explained that, with immediate effect, “the ratings on the insurer are no longer automatically capped by those on its parent, UAE-based Mashreqbank (BBB/Watch Neg/A-2). We could now assign ratings up to two notches above those on the parent bank if our stand-alone assessment of the insurer justifies it.” S&P added that, based on current indications its analysis “of the general economic and industry risks affecting insurers and banks in the UAE, and our review of Oman Insurance’s position and outlook are likely to prove supportive of the insurer’s ratings at the current level, with the likelihood of any further lowering of the ratings now much diminished. Final resolution of the CreditWatch will, however, depend on resolution of the negative CreditWatch. S&P added: “We have satisfied ourselves that creditors of Mashreqbank have no legal, direct recourse to the assets of Oman Insurance, and have received independent legal opinions that include the statement: “the bankruptcy of Mashreq alone would not cause Oman Insurance to become insolvent and/or give any court cause to put Oman Insurance into bankruptcy.” Credit analyst Nigel Bond added: “As Oman Insurance is a listed company, Mashreqbank could sell shares in its subsidiary at any time with relative ease. The insurer would remain independently viable because it would retain its separate branding and is not strongly integrated into the bank group either operationally or managerially. Significantly, and very unusually, Mashreqbank does not have any representation on the board of directors of Oman Insurance.” S&P expects to resolve Oman Insurance’s CreditWatch status by the end of February, at the same time as its resolves Mashreqbank’s CreditWatch status.

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