Ratings Roundup: Colonial Group, Flagstone Alliance, Hannover Re (debt)

September 9, 2010

A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of the life/health and property/casualty operating subsidiaries of Colonial Group International Ltd. The outlook for all ratings is stable. Colonial Group is a wholly owned intermediate holding company of Edmund Gibbons Limited, the ultimate parent company. All companies are domiciled in Bermuda, unless otherwise specified. Best said the rating affirmations “reflect the operating subsidiaries’ adequate risk-based capitalization, the consistent increase in total consolidated equity despite some unfavorable operating results in the most recent year, and their diversified business profiles, with the focus being on life/health and property/casualty markets in Bermuda, the Bahamas, Cayman Islands and the Caribbean.
Colonial Group’s life/health subsidiaries have reported unfavorable underwriting results in the most recent year with the exception of Colonial Life Assurance Company Limited, whose net underwriting losses narrowed in 2009 over 2008. Colonial Medical Insurance Company Limited and Atlantic Medical Insurance Limited (Bahamas) were negatively affected by unusually high cost claims experience triggered mostly by a weak economic environment. Both are regional companies with a continued strong presence in their respective health markets. On a net income basis, the life/health subsidiaries’ combined results were lower in 2009 from 2008 but remained positive due to an improvement in the financial markets.” As far as the P/C operations are concerned, Best said “Colonial Group’s three operating subsidiaries have generally demonstrated good underwriting results, improved operating performance trends and continuing parental support. Furthermore, Colonial Group benefits from these subsidiaries’ reinsurance leverage to manage their property/casualty risks, while growing direct premium revenues in their core markets.” As offsetting factors, Best cited Colonial Group’s “significant concentration risk in the volatile life/health lines of business in several geographic regions, vulnerability to frequency and severity of catastrophic events from the property/casualty risks within the markets it serves, large amounts of inter-company transactions and challenges in improving its health business profitability in the current economic environment.” The FSRs of ‘A-‘ (Excellent) and ICRs of “a-” have been affirmed for the following life/health and property/casualty operating subsidiaries of Colonial Group International Ltd:
— Colonial Medical Insurance Company Limited
— Atlantic Medical Insurance Limited
— Colonial Life Assurance Company Limited
— Colonial Insurance Company Limited
— British Caymanian Insurance Company Limited
— Security and General Insurance Company Limited

A.M. Best Europe Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Flagstone Alliance Insurance and Reinsurance PLC, which is based in Limassol, Cyprus. The outlook for both ratings is stable. Best Europe said the affirmations are the “result of the implementation of an intercompany quota share reinsurance agreement between Flagstone and its parent company, Flagstone Reassurance Suisse SA. The quota share enables Flagstone to cede 100 percent of all gross losses to Flagstone Re.”

A.M. Best Europe Rating Services Limited has assigned a debt rating of “a” to the €500 million [$636 million] subordinated fixed to floating rate bonds recently issued by Hannover Finance (Luxembourg) S.A., which are also guaranteed by German reinsurer Hannover Rueckversicherung Aktiengesellschaft (Hannover Re).The outlook for this rating is stable. Best noted that the bonds have been offered in a denomination of €50,000 [$63,600] each and in the aggregate principle amount of €500 million. The proceeds from the debt offering will be used for general business purposes. The debt matures September 2040 and provides the issuer with the option of redemption after ten years. Hannover Re’s leverage and interest coverage remain within tolerance for the company’s current rating.”

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