Ratings Recap: GIC India, Top Layer Re, AIA (Australia), PartnerRe (notes)

March 15, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of General Insurance Corporation of India (GIC), both with stable outlooks. The ratings reflect GIC’s “strong capitalization, stable expense ratio and established market presence,” said Best. “GIC’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains strong and is supportive of its current ratings. GIC’s underwriting leverage stood at 0.53 times for fiscal year 2008-09.” Best also noted that in its opinion the major risk component affecting the company’s risk-adjusted capitalization is investment risk, as GIC invested approximately 42 percent of its invested assets in the Indian equity market.” As a result Best said it believes that “movement in the Indian equity market will cause GIC’s risk-adjusted capitalization to be volatile. GIC maintains a stable expense ratio with a five-year average of 26 percent. This ratio is attributable to the company’s low management expense ratio (management expenses/net premium ratio) of below 1 percent and a stable commission structure.” Best also noted that as the sole domestic reinsurer in India, “GIC’s business profile remains strong, with the company maintaining its leading business position in the domestic reinsurance market. In recent years, GIC also has been directing more resources in expanding its overseas markets. In fiscal year 2008-09, business from overseas markets contributed to 38 percent of the company’s total gross premium written (GPW) as compared to 22 percent in fiscal year 2006-07. GIC has targeted to underwrite 50 percent of its GPW from foreign markets by fiscal year 2014-15. Offsetting rating factors are the company’s poor underwriting performance and its reliance on investment income to generate profits. GIC has recorded underwriting losses in the past five years, with a five-year average combined ratio of 109 percent. The company is heavily reliant on investment income to offset its underwriting losses. However, the performance of investment income is dependent on the Indian equity market.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating(ICR) of “aa-” of Bermuda-based Top Layer Reinsurance Ltd., both with stable outlooks. The ratings reflect the substantial amount of support Top Layer receives from its co-owners, State Farm Mutual Automobile Insurance Company, which has an FSR of ‘A++’ [Superior] and an ICR of “aa+”) and Renaissance Reinsurance Ltd. (RenRe), which is rated with an FSR of ‘A+’ [Superior] and an ICR of “aa-“. Best noted that “since Top Layer’s inception in 1999, it has generated outstanding operating results, which are due to the property catastrophe underwriting expertise of RenRe, combined with the lack of catastrophes significant enough to impact the programs written in Top Layer’s core markets. Top Layer’s business scope is limited to the assumption of high excess layers of non-U.S. property catastrophe risks underwritten on a global basis. The company has been loss-free since inception” Best added that on a stand-alone basis, Top Layer is “only modestly capitalized relative to the high excess layers of property catastrophe risks it assumes. However, through the various contractual obligations of State Farm and RenRe, Top Layer receives substantial capital support and reinsurance protections from State Farm and, to a much lesser degree, RenRe. Top Layer is structured so that its maximum full limit net loss during any calendar year is capped at $100 million. The occurrence of losses will trigger capital calls for State Farm and RenRe to replenish Top Layer’s capital. Moreover, State Farm provides Top Layer with a $3.9 billion excess of $100 million stop-loss reinsurance protection. This coverage is significantly larger than the aggregate exposures Top Layer undertakes in each of its geographic zones.” Best also indicated that it acknowledges that Top Layer’s ratings are largely dependent upon the support it receives from State Farm and RenRe.” Best said it “monitors these companies on an ongoing basis and continues to assess how any developments may impact Top Layer’s ratings.”

Standard & Poor’s Ratings Services has indicated that its rating on AIA Australia Ltd. (AIAA; A+/Negative/–) is not affected by the announcement by Prudential PLC (A+/Watch Neg/A-1) to acquire AIG’s Asian subsidiaries. The rating and outlook on AIAA “reflect those on its guarantor, American Home Assurance Co. (A+/Negative/–),” said S&P. “Currently, the guarantee is still in place and is unaffected by the acquisition announcement. Should the guarantee be removed, AIAA’s rating would likely be lowered to ‘A’ and placed on CreditWatch Developing, reflecting its ‘strategic importance’ to its Asia-based parent American International Assurance Co. Ltd. (AIA; A+/Watch Dev/–). The strategic importance, rather than core status, reflects AIAA’s geographic separation from Asia and its relatively small size compared with the other Asian operations. The rating on AIAA reflects its moderate business franchise in Australia, solid group business premium growth in the past year, and conservative investment and financial structure. Factors offsetting these strengths are the company’s small absolute size and some uncertainty around traction of the AIAA brand in the wake of perceived AIG brand damage and the recent change in ownership.”

A.M. Best Co. has assigned a debt rating of “a-” to the recently issued $500 million fixed rate 5.50 percent senior unsecured notes due 2020 issued by PartnerRe Finance B LLC, which are fully and unconditionally guaranteed by PartnerRe Ltd. [See also article at – https://www.insurancejournal.com/news/international/2010/03/15/108139.htm].The rating outlook is stable. Best noted that as a result of this debt issuance, PartnerRe’s unadjusted financial leverage is “projected to be maintained in the mid-teens, which remains supportive of its current rating level. PartnerRe’s strong and consistent historical earnings performance has resulted in solid fixed charge coverage measures. PartnerRe intends to utilize the proceeds of the senior notes issuance for general corporate purposes.” Best added that the debt rating also reflects PartnerRe’s “excellent business profile, strong risk-adjusted capitalization and strong enterprise risk management practices. Somewhat offsetting these strengths are PartnerRe’s exposure to catastrophic losses and the challenges associated with the ongoing integration of PARIS RE.”

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