Ratings Roundup: Travelers (UK), Tenet, Allianz (France)

October 19, 2010

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A (Excellent) and issuer credit rating (ICR) of “a+” of UK-based Travelers Insurance Company Limited (TICL), both with stable outlooks. TICL is expected to “maintain excellent stand-alone risk-adjusted capitalization in 2010, supported by an increase in shareholders’ funds of approximately 5 percent (2009: £515 million [$810 million]),” said Best. “The ratings also continue to factor explicit parental support in the form of a guarantee of all TICL’s liabilities provided by St. Paul Fire and Marine Insurance Company (SPFM), a subsidiary of its ultimate parent, The Travelers Companies, Inc.” In addition, TICL benefits from reinsurance support from SPFM. However Best did indicate that TICL is expected “to report a technical loss in 2010, despite modest rate increases for certain lines of business and prior year reserve releases. In 2009, TICL’s technical result deteriorated to a loss of £31 million [$48.77 million] from a profit of £ 59 million [$82.2 million] in the previous year, principally due to a significant reduction in releases from prior year reserves and losses arising from a portfolio of discontinued Irish professional indemnity business. The underwriting loss was offset by investment earnings and the company produced a pre-tax profit of £33 million [$51.92 million.” Best also described TICL’s investment portfolio as “conservative,” comprising “only high quality bonds and cash. In 2010, a solid net investment yield is expected, albeit lower than the 4 percent achieved in 2009 (excluding realized and unrealized gains/losses).” The company also has a “good business profile in its core UK market as a specialist underwriter of liability and commercial property business,” Best continued. “The company’s profile also benefits from the strong brand recognition of its US- domiciled parent. TICL is the Travelers group’s main underwriting operation in the United Kingdom and Ireland.”

A.M. Best Co. has upgraded the financial strength rating to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit rating to “a” from “a-” of Singapore’s Tenet Insurance Company Ltd, and has removed the ratings from under review with positive implications and assigned a stable outlook. Best said the “rating actions are based on the expected implicit support from Tenet’s new parent, Sompo Japan Insurance Inc since June 1, 2010. Potential gains arising from the implicit support include sharing of the group’s in-house facilities. The ratings also recognize Tenet’s strong capitalization level, recovered operating result and sound liquidity of its invested assets.” Best noted that Tenet recorded an overall operating profit in 2009 of SGD 9.5 million [US$, 7.26 million] compared to a loss of SGD 4.3 million [$US$3.286 million] in 2008, which was driven by the financial market pick-up and the release of claims reserves.” In addition Best observed that Tenet has maintained a superior degree of liquidity, with over 60.0 percent of its assets invested in cash and fixed income assets. The company disposed of over half of its equities held during fiscal year 2009, exposing it to lower financial market volatility.” As offsetting factors Best cited “the prevailing soft market conditions and continued poor claims experience of the company’s workers’ compensation portfolio, one of its major business lines. With the increase in the compensation amount stipulated by regulation and competition in the commercial lines, the underwriting result of the workers’ compensation line is expected to remain unfavorable in the midterm.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit rating (ICR) of “aa” of Allianz IARD and Allianz Vie, the main subsidiaries of Allianz France SA.The ICR of “aa” and debt rating of “a+” on €400 million [$552.3 million] 4.625 percent junior subordinated bonds due 2015 issued by Allianz France SA remains unchanged. The ratings for Allianz IARD and Allianz Vie “reflect the implicit support of Allianz Societas Europaea, which owns 100 percent of Allianz France SA,” said Best. The outlook for all of the ratings remains stable. Best added that in its opinion “in 2009 Allianz Vie’s capital position improved, benefitting from good earnings retention with increased profitability and a higher value of in-force business (VIF). Conversely, Allianz IARD has seen a sharp decline in its risk-adjusted capitalization. Whilst the transfer of Allianz Global Corporate and Specialty (AGCS) business from Allianz IARD to the group has minimal impact on its capital position, high up-streamed dividend payments have increased capital pressures on the non-life entity.” Best added that it believes that Allianz France SA’s “prospective dividend policy and investment performance are likely to be the main drivers for the companies’ capitalization for 2010. Furthermore, the companies are facing pressure on performance and maintaining their market position. Allianz IARD is expected to have an underwriting loss in 2010, albeit at a lower level than 2009, arising from further catastrophe losses in the first quarter from Windstorm Xynthia, potentially maintaining its combined ratio above 100 percent.” In the absence of further catastrophe losses and improved performance on its motor book, Best expects a return to profitability in 2011. Allianz Vie’s performance has partially rebounded in 2010, with favorable economic conditions and competitively priced products increasing demand for life products. Best also expects a “challenging climate over the next two years with both entities concentrating on profitability over growth. A renewed strategic focus in 2011 is likely to be adopted following the rebranding into the Allianz group. Best expects Allianz IARD and Allianz Vie to maintain their strong positions in France and expects their profitability to improve in 2011.”

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