Ratings Recap: Alterra (notes), Gulf Ltd., Barents Re, Middle East Insurance

September 28, 2010

A.M. Best Co. has assigned a debt rating of “bbb” to the recently issued $350 million 6.25 percent senior unsecured notes due 2020 of Delaware-based Alterra Finance LLC. The senior notes are fully and unconditionally guaranteed by Alterra Capital Holdings Limited. The assigned outlook is stable. Best noted that the “proceeds from the debt offering will be used for the repayment of existing debt and general corporate purposes. The debt-to-adjusted capital ratio and fixed charge coverage remain comfortably within the range that is commensurate with the assigned rating.” Alterra is a diversified specialty insurance and reinsurance company, which was recently formed as a result of the merger between Max Capital Group Limited and Harbor Point Limited that took place in May 2010. Alterra has operations in Bermuda, Europe, the United States and Latin America.

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Trinidad and Tobago-based Gulf Insurance Limited; however Best said “both ratings remain under review with negative implications.” The rating affirmations and under review status reflect Gulf’s “proposed capital restructuring plan,” which Best added would alleviate its “financial leverage concerns at Gulf’s parent company, Gillani Limited. The capital restructuring plan is centered on a significant investment by an unrelated investor, which will eliminate the debt at Gillani and debt servicing requirements at Gulf. The ratings will remain under review pending regulatory approvals, closing of the transaction and full implementation of the capital restructuring plan.” Best indicated that if the capital restructuring plan is not implemented by December 31, 2010, it would “re-evaluate Gulf’s capital position and overall financial condition with the possibility of significant downward rating pressure being the result.” Gulf is a multi-line property/casualty insurer operating in several Caribbean markets, with its main operating presence in Trinidad and Tobago, St. Maarten and the British Virgin Islands. The company has historically reported consistent operating profits as a result of disciplined underwriting and conservative risk management and pricing strategies. These strengths have enabled Gulf to continue to enhance its capitalization, which remains adequate for its current business profile.

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Panama’s Barents Re Reinsurance Company, Inc., both with stable outlooks. The ratings reflect Barents Re’s “strong balance sheet, excellent liquidity and its diversified operating strategy within underserved segments,” said Best. The ratings also recognize the company’s “experienced management, niche and specialized markets, favorable operating results and its conservative underwriting and reserving practices.” As offsetting factors Best cited “Barents Re’s overall business environment where a relatively unpredictable and less transparent political, legal and business milieu exists along with underdeveloped capital markets, which are under a partially inadequate regulatory structure.” Best described the company as a “regional Latin American reinsurer with a conservative approach to underwriting, writes most classes of proportional and non-proportional reinsurance. The biggest classes of business underwritten are: accident & health, credit and bond and massive products. Barents Re also is active within certain specialized areas of reinsurance. These areas are international health and travel insurance, contingency, unemployment, credit and fraud.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating (FSR) of ‘B++’ (Good) and an issuer credit rating (ICR) of “bbb” to Jordan-based Middle East Insurance Company Plc, both with stable outlooks. Best said the ratings reflect MEICO’s “good business position in Jordan, good technical profitability and declined but strong-risk adjusted capitalization.” MEICO is the fourth-largest insurance company in Jordan with gross written premiums (GWP) of JOD 23 million [$32.42 million] in 2009. GWP grew by 6 percent in 2009, which was lagging behind the growth rate for the whole market (8 percent). Non-life premiums, which account for 90 percent of the company’s premium production, grew by a more modest 5 percent due to the company’s strategy of actively discouraging the writing of motor third party liability business due to its unsatisfactory results. Life, medical expenses and personal accident business grew by more than 20 percent, reflecting the company’s success in attracting new clients in its chosen segments” Best added that it “believes that GWP will grow by approximately 10 percent-12 percent in 2010.” It also believes that MEICO’s financial performance is good with pre-tax profits stable in 2009. During the year, underwriting profits declined as non-life business was impacted by one-off events, and life profitability declined due to the worsening investment performance. The combined ratio increased to 93 percent, which is the highest level for the company over the last four years. Best said it “expects the combined ratio to improve in 2010 due to the lack of the one-off events of the previous year, while life profitability and investment performance will continue to be impacted by the equity prices and will therefore be at similar levels as 2009. Pre-tax profits will be in the range of JOD 1.5 – 1.8 million [$2.114 to $2.54 million]. MEICO’s risk-adjusted capitalization has remained strong despite the volatility experienced in recent years. The high exposure to equities combined with the decline in their values has resulted in a reduction in capital and surplus. Insurance risk remains low, with the company retaining less than 50 percent of the business it writes.” Best added that it “believes that MEICO’s risk-adjusted capitalization will remain stable during 2010, driven by the decision of retaining the full amount of profits in respect of the 2009 financial year.”

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