Ratings: Wilton Re, London General, Cattolica, Arab Re

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A’ (Excellent) from ‘A- ‘(Excellent) and issuer credit ratings (ICR) to “a” from “a-” for Wilton Reinsurance Bermuda Ltd., Wilton Reassurance Company (Plymouth, MN), Texas Life Insurance Company (Waco, TX) and Wilton Reassurance Life Company of New York, collectively referred to as Wilton Re. Best also revised the outlook for all of the ratings to stable from positive. The bulletin explained that the upgrades reflect Wilton Re’s “successful execution of its business plan, which has resulted in continued growth in earnings and operating efficiencies. Moreover, Wilton Re maintains strong risk-adjusted capital ratios, supported by a conservative investment portfolio. The company’s experienced management team has demonstrated its ability to acquire blocks of in-force life insurance business funded through the use of internally generated capital, in addition to securing outside equity on an as needed basis. Wilton Re is debt free with no operating leverage and maintains a favorable liquidity position.” Best added that it believes the company has “sufficient resources and access to capital to continue its pattern of growth through in-force transactions where the competition is somewhat limited.” As partial offsetting factors Best cited Wilton Re’s relatively “smaller size compared to its peers and increased competition in the traditional reinsurance marketplace and the continued low interest rate environment may constrain earnings.” Best said it also believes that “the current environment and competitive landscape remains challenging and may limit Wilton Re’s ability to acquire a larger volume of traditional new business.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength ratings of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of London General Insurance Company Limited (LGI) and London General Life Company Limited (LGL), both with stable outlooks. “Despite challenging trading conditions, both LGI and LGL are likely to maintain excellent risk-adjusted capitalization in 2011,” said Best. “A small reduction in LGI’s shareholders’ funds, following the projected payment of ordinary and preference dividends, is expected to be partly offset by a reduction in credit risk due to an increase in the number and quantum of letters of credit and trust arrangements used to mitigate reinsurer default risk. LGL is expected to maintain excellent risk-adjusted capitalization supported by continued profitability and a reduction in underwriting risk.” Best also indicated that LGI is expected “to report a good underwriting result in 2011, principally driven by the strong performance of its core warranty business. The company achieved an excellent technical profit of approximately £19 million [$31.4 million] in 2010 (2009: £14 million [$23.12 million]). The result benefited from reserve releases due to better claims experience on recession-affected lines such as creditor and unemployment policies.” Best also indicated that LGL’s technical earnings are “expected to improve in 2011, on the £1.4 million [$2.3 million] achieved in the previous year, as a result of a further release from its long-term business provision. Performance in 2010 was supported by earnings from profitable multi-year contracts written in prior years and a reduction in the long-term business provision. LGI and LGL are expected to maintain a good specialist profile in the UK, Ireland and Europe. The companies share a broad client base, and their combined underwriting portfolio includes extended warranty, accidental damage and creditor insurance. The net premium income of LGI is expected to increase in 2011 due to a number of new large warranty contracts. In contrast, net premium written by LGL is likely to reduce mainly due to weak economic conditions in the UK and Europe and a resultant reduction in demand for consumer loans.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of Italy’s Societa Cattolica di Assicurazione – Societa Cooperativa, both with stable outlooks. Best then said it has “withdrawn the ratings at the company’s request.” The ratings reflect the company’s “diversified insurance portfolio and established position as a medium-sized insurer with primary focus on the wealthier north of Italy,” Best explained. “The ratings also reflect the significant improvement of Cattolica Assicurazioni’s performance in the non-life business, where, in A.M. Best’s opinion, the company has achieved a sustainable level of technical profitability, despite the persistent challenging conditions in the Italian non-life insurance market.” As an offsetting factor Best cited “the uncertainty on the future performance of Cattolica Assicurazioni’s life business,” which Best said it “believes will depend on the enhancement of the company’s asset liability management and, more generally, on the improvement of the company’s control on the life insurance portfolio. An additional offsetting factor is the risk of volatility of Cattolica Assicurazioni’s prospective risk-adjusted capitalization, which highly depends on the company’s investment decisions and dividend policy.”

A.M. Best Europe – Rating Services Limited has downgraded the issuer credit rating to “bb” from “bb+” of Syria’s Arab Union Reinsurance Company (AURe); however the financial strength rating of ‘B’ (Fair) is unchanged. Both ratings remain under review with negative implications. The rating action reflects the “continued impact of the recent political unrest in the region, extending to AURe’s main market, Syria,” Best explained. “There are greater concerns regarding the sustainability of AURe’s business profile and operating performance, with approximately 50 percent of its business written sourced from affected areas. It is anticipated that AURe’s business volumes will be lower than expected, and higher claims activity is likely to impact operating performance in 2011. AURe’s liquidity position remains sound given its high concentration in cash and short-term deposits, with funds outside affected countries.” In addition Best pointed out that “AURe is equally owned by the two governments: Syria and Libya, where the company receives 10 percent legal cessions from these markets. There are concerns regarding AURe’s prospective operational viability, with the company having reduced financial flexibility and greater uncertainty over board decision-making, given the political situation in these countries, particularly Libya. The under review status will be resolved once there is further clarity regarding the political situation in the region and any further impact on AURe.”

Topics Europe AM Best London