Ratings Roundup: NIPPONKOA (Asia), Aspen (Notes), Asia Capital

December 16, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Hong Kong-based NIPPONKOA Insurance Company (Asia) Limited, both with stable outlooks. The rating affirmations reflect NIPPONKOA Asia’s “sound risk-based capitalization, high liquidity within its investment portfolio and the continued support of its parent, NIPPONKOA Insurance Company Ltd, including business generation and supportive reinsurance arrangements,” said Best. NIPPONKOA Asia’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, reflects its “low net premium leverage and conservative investment profile. In addition, its consistently profitable operating earnings supported the accumulation of surplus levels from 2005 to 2009. The company’s risk-adjusted capital and surplus position will remain sound in 2010 given its expected reduction in business volume.” Best also indicated that NIPPONKOA Asia’s “liquid investment portfolio strategy has been to invest predominantly in cash, bank deposits and bonds, resulting in an overall net investment yield of 1.3 percent in 2009. As the company has no exposure in equities, its highly liquid portfolio allows it to support the relatively short-tailed nature of its insurance liabilities, as well as generate stable streams of income to complement lower projected underwriting income given its smaller book of business in future periods.” As offsetting factors Best cited “NIPPONKOA Asia’s lower underwriting profitability and the challenges associated with maintaining a growing book of business. The underwriting results of NIPPONKOA Asia have been impacted by major earthquake event losses in Taiwan in the company’s fronting portfolio for eight months in 2010. Underwriting losses were recorded through August, which led to pre-tax operating losses. The loss ratio deteriorated to 67 percent as of August 2010, compared to 27 percent for the same period in 2009. The combined ratio is expected to increase from 80 percent achieved in 2009 to between 95 percent and 100 percent in 2010. NIPPONKOA Asia’s business has been experiencing a decrease both in terms of premiums and competitiveness, underpinned by a smaller book due to the fronting businesses in China and the Philippines being transferred to sister companies since 2009. Going forward, NIPPONKOA Asia faces challenges in attracting new business under increasingly competitive markets, which is indicative of its anticipated continuous decrease in premiums through 2011.”

A.M. Best Europe – Rating Services Limited has assigned a debt rating of “bbb” to the $250 million 6.0 percent senior notes issued by Bermuda-based Aspen Insurance Holdings Limited. The outlook is stable. All other ratings on Aspen entities and related debt issues remain unchanged. Best said it expects the net proceeds from the offering to be used for the Aspen group’s general corporate purposes. The securities mature in 2020 and have an interest rate of 6.0 percent per annum. Financial and debt leverage ratios are expected to remain within A.M. Best’s tolerance levels.”

A.M. Best Co. has affirmed the financial strength ratings of ‘A-‘ (Excellent) and the issuer credit ratings (ICR) of “a-” of Singapore-based Asia Capital Reinsurance Group Pte. Ltd. (ACR), Asia Capital Reinsurance Malaysia Sdn Bhd (ACRM), based in Malaysia, ACR ReTakaful SEA Berhad (ACR ReTakaful SEA), also in Malaysia, and Bahrain-based ACR ReTakaful MEA B.S.C. (c) (ACR ReTakaful MEA) In addition Best has affirmed the ICRs of “bbb-” of Singapore’s ACR Capital Holdings Pte. Ltd. (ACR Holdings) and UAE-based ACR ReTakaful Holdings Limited. The outlook for all of the ratings is stable. The rating actions reflect ACR, ACRM, ACR ReTakaful SEA and ACR ReTakaful MEA’s “solid capitalization and strong risk management capabilities, said Best, as well as their “prudent reserving practice. As demonstrated by Best’s Capital Adequacy Ratio, ACR, ACRM, ACR ReTakaful SEA and ACR ReTakaful MEA’s risk-adjusted capitalization levels are adequate to support their forecasted premium growth. Best also noted that ACR “showed good underwriting and overall operating results in fiscal year 2009-10, with an after tax profit of $63 million, as compared to a loss in fiscal year 2008-09 when the financial crisis occurred. Since inception in November 2006, ACR showed continuous improvement in its combined ratio, recording 92.5 percent in fiscal year 2009-10. According to the company’s forecasts, this positive trend is likely to continue in fiscal year 2010-11.” Best explained that as compared to the original business plans of ACRM, ACR ReTakaful MEA and ACR ReTakaful SEA, the “actual premium size of these companies was lower than expected. The driving factor behind this is the competitive environment and the companies’ discipline of selective underwriting.” Best added that it “believes that there may be a challenge for the companies to achieve their forecasted business volume given the competitive environment in the markets where these companies operate.”

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