Ratings Roundup: Allianz (Italy), MAPFRE PRAICO, Maiden

June 18, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa” of Allianz S.p.A. (Italy), both with stable outlooks. Best explained that the ratings reflect the “enhancement received from the implicit support of Allianz S.p.A.’s parent company,” Germany’s Allianz Societas Europaea. Other factors include Allianz S.p.A.’s “excellent consolidated risk-adjusted capitalization and good operating performance. An offsetting factor is the persistent pressure on margins in the Italian insurance market, namely in the motor business.” Best also noted that Allianz S.p.A. has a “strong business position in Italy, ranking among the top three insurance groups both in life and non-life, with consolidated statutory premiums in 2009 of €12.8 billion |$15.83 billion] (20 percent higher than in 2008). In the life segment, statutory premiums increased by approximately 45 percent to €8.6 billion [$10.64 billion], mainly due to the exceptional growth of traditional products with minimum guarantee, which more than offset the reduced demand for linked products. Allianz S.p.A.’s sales were boosted by the very good performance of the bancassurance and financial advisors distribution channels. In 2009, the favorable trend in business volume was experienced by the entire life insurance Italian market”. Best expects this trend to continue in the future, “due to customers’ preference in insurance products with minimum guarantee. In the non-life segment, Allianz S.p.A.’s premiums decreased in 2009 by around 12 percent. The company’s non-life business is mainly concentrated on motor third party liability, whose profitability in the overall Italian market further decreased in 2009, despite the increase of tariffs implemented by various companies, including Allianz S.p.A. Allianz S.p.A. preserves a good technical profitability, as it maintains a strict underwriting approach and keeps pruning its non-life insurance portfolio, primarily motor and general liabilities, with the result of performing better than the market average (although it translates into lower market share).” Best added that in its opinion “the Italian non-life insurance business, especially motor, is likely to remain under pressure both in terms of volumes and profitability, which could impact the company’s performance. Despite the market challenges, Allianz S.p.A. reported steady net profits in 2009 at €374 million [$462.64 million], with a return on equity of around 9 percent.” Best also said it believes that Allianz S.p.A. has an excellent level of risk-adjusted capitalization, which improved in 2009 and is supported by the recovery of financial markets, positive net results and an overall low risk profile.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of MAPFRE PRAICO Group and its members, which consist of the lead company, MAPFRE PRAICO Insurance Company and its wholly owned subsidiary, MAPFRE Preferred Risk Insurance Company, as well as an affiliate company, MAPFRE Pan American Insurance Company, whose businesses are significantly reinsured by MAPFRE PRAICO Insurance Company. The outlook for all ratings is stable. All companies are domiciled in San Juan, Puerto Rico. The ratings reflect MAPFRE PRAICO Group’s “excellent capitalization, strong operating performance through solid investment income and profitable underwriting results, and established market presence within Puerto Rico,” said Best. “The group maintains a conservative underwriting philosophy as well as a comprehensive reinsurance program, which protect surplus from shock losses and enhances stability of earnings. Management remains conservative in establishing reserve estimates as evidenced by favorable calendar year reserve development over the long term. The ratings also reflect the group’s solid brand name and integral role as a member of MAPFRE S.A., the largest insurance group in Spain.” As offsetting factors Best cited “the group’s geographic concentration of risk, which potentially exposes capital to frequent and severe weather-related events. Operating almost exclusively within Puerto Rico, results also remain exposed to potential changes within the judicial, regulatory and economic climate. The economic recession that began in 2006 continues, which places additional pressure on the group’s premium growth and sustainability of profit levels. The Puerto Rico insurance market remains very competitive as local insurers challenge each other for market share, particularly within the commercial lines, which are unregulated. Nevertheless, MAPFRE PRAICO Group is one of the top three property writers on the island and continues to develop products and platforms that should benefit future earnings and capital appreciation.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based Maiden Insurance Company, Ltd. (MIC), Missouri-based Maiden Reinsurance Company (MRC), and its wholly owned subsidiary Maiden Specialty Insurance Company (MSIC), which is based in So. Carolina. The companies operate through an intercompany quota share reinsurance agreement. Best also affirmed the ICR of “bbb-” of the parent holding company, Maiden Holdings, Ltd., which is based in Bermuda. The outlook for all ratings is stable. Best explained that the ratings reflect the “solid risk-adjusted capitalization achieved through capital contributions from Maiden Holdings and the operational benefits that MIC derives as a 40 percent quota share partner with AmTrust Financial Services, Inc’s (AFSI) Bermuda reinsurance subsidiary, AmTrust International Insurance, Ltd. (AII). In addition, the ratings reflect MRC’s and MSIC’s strategic importance to Maiden Holdings as a dedicated U.S. reinsurance platform, providing treaty, accident and health and specialty facultative reinsurance.” Best noted that the execution risk faced by management in achieving its business plans and integrating newer business” should be considered as offsetting factors. However, Best also indicated that despite these concerns, the rating outlook is “supported by the financial commitment of Maiden Holdings, its seasoned management team and the close working relationship that MIC, MRC and MSIC share with AFSI.”

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