S&P Lowers Outlook on Alea to Negative

Standard & Poor’s Ratings Services announced that it has revised its outlook on the Alea Group to negative from stable. The revision includes the following companies: Alea Europe Ltd., Alea (Bermuda) Ltd., Alea Global Risk Ltd., Alea Jersey Ltd., Alea London Ltd., Alea North America Insurance Co., and Alea North America Specialty Insurance Co. – the operating entities that comprise the Alea group.

S&P said that at the same time it has revised its outlook on the group’s intermediate holding company, Alea Group Holdings AG, to negative from stable, and has affirmed all ratings on the group, including its “A-” long-term counterparty credit and insurer financial strength ratings on the operating entities.

“The outlook revision mainly reflects concerns relating to the widespread changes that have been made to the senior management team at Alea over the past nine months, the latest of which is today’s announcement that the Group CFO will be leaving in April, with an interim CFO in place pending a permanent successor being named,” said the bulletin.

“Standard & Poor’s had considered the previous management team to be a positive factor for the ratings, but certain members of that team have left Alea in the past year,” noted S&P credit analyst Peter Grant. “While the new team appears to have solid credentials and has indicated that no material changes to the underwriting strategy are under consideration, it is unproven as a team and it is too early, at this stage, for Standard & Poor’s to make an assessment of the impact the new management team is likely to have on Alea’s medium-term strategic direction, risk appetite, and operating performance, in a challenging marketplace.”

S&P also noted that the “CEOs of the Alea Alternative Risk, Alea London, and Alea Europe business segments remain unchanged. Adding to the longer term uncertainty are the somewhat disappointing results for 2004, which were in part due to the preannounced need to add to prior-year reserves. Given that 2004 is expected to be the top of the current premium price cycle, the new management team will need to demonstrate that it is able to manage the group in a softening market.”

“The new team will also need to demonstrate that any further prior-year development will not unduly affect future profitability. Notwithstanding these longer term concerns, the current ratings remain underpinned by the group’s very strong capitalization, strong competitive position in a number of niche markets, and improved underlying profitability for recent underwriting years.”

S&P indicated that the “negative outlook reflects the uncertainty surrounding the new management team’s ability to generate an acceptable risk-adjusted return in a softening market. Failure to do so may result in a lowering of the ratings.”

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