Ratings Recap: Montpelier Re, CCR Algeria

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of Bermuda-based Montpelier Reinsurance Ltd. and Montpelier US Insurance Company (MUSIC), which is based in Oklahoma City. Best also affirmed the ICR of “bbb-” and all existing debt ratings of Montpelier Re Holdings Ltd., also based in Bermuda. The outlook for all ratings is stable. The ratings reflect Montpelier’s “strong risk-adjusted capitalization, solid operating performance and enhanced enterprise risk management framework,” said Best. Additionally, the affirmations consider Montpelier’s “solid operating performance in 2009 as the company’s underwriting results benefitted from a lack of significant catastrophic events and an investment portfolio that rebounded from sizable unrealized losses reported in 2008. While 2008 resulted in negative overall return measures due in part to investment losses, the company’s risk management and strength of its balance sheet kept the impact of these events to a manageable level. Furthermore, the improvement in risk management and the initiatives implemented in recent years to reduce the company’s risk profile are proving effective as evidenced by the level of losses incurred from recent significant industry events.” As offsetting factors Best cited Montpelier’s “susceptibility to low frequency, high severity losses as a global property catastrophe focused reinsurer. The company’s premium volume remains concentrated in catastrophe-exposed property lines of business. While affiliates MUSIC and Lloyd’s platform, Syndicate 5151, offer diversification to Montpelier’s business mix, both business plans have yet to mature.” Best summarized the ratings as follows: The FSR of ‘A-‘ (Excellent) and the ICR of “a-” have been affirmed for Montpelier Reinsurance Ltd. and Montpelier US Insurance Company. The ICR of “bbb-” has been affirmed for Montpelier Re Holdings Ltd. Best also affirmed all of the Company’s debt ratings.

A.M. Best Co. has assigned a financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” to Algeria’s Compagnie Centrale de Réassurance (CCR), both with stable outlooks. The ratings reflect CCR’s “good local business profile, strong risk-adjusted capitalization and good but potentially volatile underwriting performance.” Best said it believes that CCR has a good domestic business position as Algeria’s national reinsurer, writing 33 percent of the market’s reinsurance premiums.” In addition best said it expects “CCR’s premium income to continue to grow in the next three years as the expenditure program by the State is likely to result in increased property, engineering and marine business. In order to help reduce its high concentration on a limited number of local cedants, the company is aiming to diversify its business by selectively growing its international portfolio. However, foreign business is not anticipated to exceed 10 percent-15 percent of overall total premiums in the near term.” Best noted that “CCR’s risk-adjusted capitalization increased very significantly in 2008 following a capital injection aimed at supporting the company’s future business strategy.” Best believes that CCR’s “prospective capital levels will remain strong, despite the planned increase in net premiums, and are likely to support a potential deterioration in claims patterns following increased underwriting limits as well as the possibility of a worsening in capital market conditions. Best also said it “expects the company’s underwriting performance to deteriorate slightly in the next two years as the increase in premium retention is likely to result in lower retrocession commissions, while at the same time increasing claims volatility. However, the combined ratio is expected to remain at a good level—around 90 percent in the next two years. In 2009, CCR posted a good profit after tax of DA 590 million in 2009, translating into a return on premium of 16 percent and a return on equity of 5 percent.”