Ratings Roundup: Heddington, MS Frontier, Oman Insurance

July 13, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Bermuda-based Heddington Insurance Limited, both with stable outlooks. The ratings reflect Heddington’s “superior capitalization, consistently positive operating results and the role that it plays as a captive insurance company of Chevron Corporation,” said Best. As partially offsetting factors Best cited Heddington’s “high net loss exposures, as the coverages provided tend to result in claims that are characterized as low frequency but high severity. This is somewhat mitigated by the captive’s good loss history supported by very strong investment income and parental support on loans to affiliated companies.” In addition best noted that Heddington “has sufficient resources to meet its underwriting related obligations, as measured by Best’s Capital Adequacy Ratio. The ratings are based on the consolidated results of Heddington and its subsidiary, Heddington Insurance (U.K.) Limited. The ratings further recognize the risk management programs and underwriting coordination in the design and implementation of insurance policies offered by Heddington, as well as the cost effective manner in which those services are delivered.” Best also indicated that Heddington gains from “Chevron’s global scope, which provides it with a favorable geographic distribution of risks assumed. In its role as a captive insurer, Heddington, along with Iron Horse Insurance Company (another active Chevron captive), currently provide broad and competitive global insurance products for Chevron and its subsidiaries. The insurance needs of Chevron are supplied through these captive operations where appropriate and the commercial market. Heddington and the other Chevron captives provide comprehensive coverage above Chevron’s internal retentions, while its reinsurance is placed through a corporate wide plan with the world’s significant providers of capacity, resulting in a diversified and balanced distribution of reinsurers.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Bermuda-based MS Frontier Reinsurance Ltd., both with stable outlooks. MS Frontier is a wholly owned subsidiary of Mitsui Sumitomo Insurance Company, Limited (MSI). MSI also is a subsidiary of MS&AD Insurance Group Holdings, Inc. (MS&AD). The ratings reflect MS Frontier’s “continued excellent underwriting performance in recent years along with ratings enhancement from the global presence, financial support and balance sheet strength of its ultimate parent, MS&AD,” Best explained. In addition, MS Frontier “maintains a very strong level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio model. MS Frontier continues to be a strategic insurance vehicle for its parent, designed to be a part of the group’s geographical portfolio optimization, risk diversification and overseas business expansion.” As offsetting factors, Best cited MS Frontier’s “exposure to low frequency, high severity events, which could significantly reduce capital given the company’s main focus on property catastrophe reinsurance. In addition, the current property catastrophe pricing environment is competitive, which could have a dampening effect on the company’s profitability if prices continue to deteriorate.”

Standard & Poor’s Ratings Services has affirmed its long-term counterparty credit and insurer financial strength ratings on United Arab Emirates-based composite insurer Oman Insurance Co. (PSC) at ‘BBB+’. S&P has also removed the ratings from CreditWatch with negative implications, where they had been placed on April 28, 2010. The outlook is stable. S&P said it had “resolved the CreditWatch on Oman Insurance following our satisfactory evaluation of the impact of the unexpected resignation of the entire board of directors of the company. Credit analyst Nigel Bond explained: “In our opinion, the resignation of the ‘old’ board of directors and the appointment of a ‘new’ board of directors has not been detrimental to the financial and business profile of Oman Insurance and has not undermined its relationship with its parent, Mashreqbank.” S&P added that according to its investigations, “a change in the audit firm of Oman Insurance may have been one of the reasons for the resignation of the old board. In our opinion, there appear to be sound reasons for changing the audit firm to the same firm used by Mashreqbank. There does not appear to be any suggestion that the company’s former audit firm was in any way deficient or inadequate, nor is there any suggestion that the old board of directors had something to hide.” Bond noted: “It is too early for us to have assessed the efficacy of the new board of directors. Nevertheless, we believe that the old board’s strongest impact was on investments. It had a limited impact on the strategy set by the management team, and we expect this to continue under the new board. Moreover, Oman Insurance has claimed that its day-to-day operations have been unaffected by the hiatus in the boardroom.” S&P said it would “assess any strategic and operational developments arising from the introduction of the new board as part of the usual ongoing surveillance.” The rating agency said the stable outlook reflects “our expectation that Oman Insurance will improve its enterprise risk management, particularly its investment risk management, which should lower the company’s risk profile. This should, in turn, benefit its capital adequacy and reduce both its capital and operating performance volatility. We also assume that the company’s underwriting performance will, in the absence of exceptional circumstances, remain very strong in 2010 and 2011, with the net combined ratio continuing to be comfortably better than 90 percent. Meanwhile, we expect Oman Insurance to maintain its strong competitive position as a leading insurer in the UAE.”

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