Ratings Recap: Everest Re (Canada), Cologne Re (Ireland), Gulf Insurance

A.M. Best Co. has assigned a financial strength rating of ‘A+’ (Superior) and an issuer credit rating of “aa-” to Everest Insurance Company of Canada (EvCan), both with stable outlooks. Best noted that EvCan is “licensed to write property, automobile, surety, liability and other classes of insurance on a primary basis. The company will be capitalized with approximately CAD $50 million [US$50.64 million] in common equity.” Its ultimate parent is the Bermuda-based Everest Re Group Ltd. The assigned ratings reflect EvCan’s “solid capitalization, expected operating results, reasonable business plan and a management team that is familiar with the business lines,” said Best. The company’s planned business is “supported by a quota share agreement with Everest Reinsurance Company, along with financial, enterprise risk management and corporate governance oversight from Everest. EvCan’s ratings also meet A.M. Best’s strict start-up capitalization requirements, which mandate a more conservative level of risk-based capital to support its ratings.” Best added that it would “closely monitor the performance of EvCan. Any material negative deviation from the business plan in terms of management, earnings, capitalization or risk profile could result in negative rating pressure.”

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Dublin, Ireland-based Cologne Reinsurance Company (Dublin) Limited and has assigned an NR-5 (Not Formally Followed) to the FSR and an “nr” to the ICR. Best has also withdrawn the FSR of ‘A++’ (Superior) and ICR of “aa+” of General Reinsurance UK Limited and assigned an NR-5 (Not Formally Followed) to the FSR and an “nr” to the ICR. Best explained that “all policyholder obligations for these companies have been transferred to other rated affiliates within the group. General Reinsurance UK Limited has been dissolved, and it is expected that Cologne Reinsurance Company (Dublin) Limited will be dissolved in the near future. No other companies and/or ratings within the group are affected by these actions.”

A.M. Best Co. has downgraded the financial strength rating to ‘B’ (Fair) from ‘B++’ (Good) and issuer credit rating to “bb+” from “bbb” of Trinidad and Tobago’s Gulf Insurance Limited, and has maintained the “under review with negative implications” status. The rating downgrades and under review status reflects the “inability of Gulf’s parent company, Gillani Limited (Gillani), to conclude efforts to restructure its capitalization in order to reduce Gillani’s financial leverage and improve its quality of capital,” Best explained. “Gulf’s balance sheet has deteriorated as a result of the continuing burden to service the excessive levels of debt at Gillani, as Gulf remains the only source of funds available to service Gillani’s debt.” Best indicated that with a significant portion of the debt coming due in the first quarter of 2011, it is “concerned with the uncertainty of the parent’s capital restructuring plan and the potential effects on Gulf’s operations, including future ownership and business retention.” Best added that the “ratings will remain under review pending either the resolution of negotiations with bondholders and implementation of Gillani’s capital restructure plan or default on the debt payment due in February 2011 and ensuing actions by regulators and/or bondholders.” When that occurs Best will “review the effects of Gillani’s action on Gulf’s ongoing operations and this could result in further downward rating pressure.” The bulletin also noted that “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. This has enabled Gulf to continue to enhance its capitalization, which, at this time remains adequate for its current business profile when measured by Best’s Capital Adequacy Ratio.”