Ratings Roundup: Dah Sing, Qualitas, Nissan Global

October 28, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based Dah Sing Insurance Company Limited (DSI), both with stable outlooks. Best said the affirmations reflect “DSI’s solid risk-adjusted capital position, enhanced net income level and high liquidity within the investment portfolio. The company’s risk-adjusted capitalization was strong in 2009, as demonstrated by Best’s Capital Adequacy Ratio, and will remain solid in 2010 to support its planned premium growth and investment risk. The expected net premium leverage for year-end 2010 will be similar to the level of 0.5 times recorded in 2009. The company’s capital management strategy, with high retention of operating earnings, continues to be an important contributor of internal surplus generation.” Best also noted that DSI posted “favorable overall earnings in 2009, which are attributable to a good underwriting result and turnaround investment income. The loss ratio improved as a result of disciplined underwriting criteria and premium rate increases in selected business, while premiums grew by 29.3 percent from the previous year.” Best added that it believes the company is “able to maintain double-digit growth in premiums through 2010, generating from its diversified distribution network with continued support from affiliated companies within the group. In 2009, DSI benefited from more favorable conditions in financial markets, which led to total investment income (including net unrealized capital gains) of HKD 5.4 million [US$696,050], up HKD 7.2 million [US$728,070] from the previous year. The conservative cash and fixed income investment portfolio (represented by more than 90 percent of the total invested assets for 2009) allows the company to have stable streams of income in future periods.” As an offsetting factor Best cited “DSI’s upward trend in its expense ratio. Although the loss ratio improved in the most recent two years, the combined ratio increased due primarily to elevated acquisition expenses as premiums grew, along with costs associated with the implementation of the information technology system.” Best said it believes that “effective expense control is essential for the company to improve its underwriting profitability going forward. DSI’s combined ratio is expected to be higher in 2010, albeit profitable, given the competitive local market conditions.”

A.M. Best Co. has assigned a financial strength rating of ‘B-‘ (Fair) and issuer credit rating of “bb-” to Mexico’s Qualitas Compania de Seguros, S.A.B. de C.V. , both with stable outlooks. The ratings reflect Qualitas’ “strained risk-adjusted capitalization, consistently elevated underwriting leverage and the company’s trend of underwriting losses,” best explained. “Historically, the company has operated with underwriting leverage considered higher than expected for an automobile insurance provider. Additionally, Qualitas maintains combined ratios just above breakeven due to its high level of loss and loss adjustment expenses recorded each year.” Best noted that Qualitas is a publicly traded insurer listed on the Mexican Stock Exchange. It “writes only automobile coverages and faces increasing competition from both foreign and domestic insurers. Qualitas continues to report significant underwriting losses and relies heavily on its investment income for its overall earnings. Competitive pricing, along with an increase in automobile theft rates in Mexico, will further pressure business retention and market share. Furthermore, in recent years, Qualitas has maintained very weak risk-adjusted capitalization for its business profile as a result of its consistently elevated underwriting leverage.” However, Best also noted that, “partially offsetting these weaknesses is the company’s leading market position in the increasingly competitive Mexican automobile insurance segment, its formidable distribution network and its solid overall profitability in recent years. Qualitas operates through a network of local agents, financial institutions and service offices and has established a formidable distribution capability throughout Mexico. This has enabled the company to maintain its leading market position in the Mexican automobile insurance segment in extremely challenging economic and market conditions.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based Nissan Global Reinsurance, Ltd. (NGRe), both with stable outlooks. The ratings reflect NGRe’s “strong capitalization and conservative operating strategy, Best explained. They also “consider the company’s critical role and favorable profile as part of the Nissan Motor Co. Ltd., as well as its excellent operating performance since its inception in 2005.” As offsetting factors Best cited “the significant exposures NGRe has to product liability, property and marine cargo claims. Additionally, the recent deterioration in the financial markets and the decline in the profitability of automakers has had some impact on premium volumes; although, investment results have not been significantly affected. Furthermore, NGRe is expecting reversal of those trends in the current year.” Best explained that “NGRe is a single parent captive of Nissan, the seventh-largest automaker in the world and third-largest in Japan. NGRe operates two distinctive lines of business: (1) global property/casualty programs for Nissan, which include global property (United States, Japan, Europe, Mexico and South Africa), U.S. workers’ compensation, U.S. and Japan product liability and marine transport, and (2) global platform for extended service contract business. NGRe benefits from the group’s extensive risk management and loss control programs. The captive operates at conservative underwriting leverage levels; however, it provides coverages with large limits, and its gross exposures per loss occurrence are therefore elevated. Nevertheless, A.M. Best recognizes the quality of the substantial financial resources and support available to the captive as part of Nissan.

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