A.M. Best Europe – Rating Services Limited has upgraded the issuer credit rating to “bb+” from “bb” and affirmed the financial strength rating of B (Fair) of Russia’s OJSC Transsiberian Reinsurance Corporation (Transsib Re), both with stable outlooks. Best said the “rating actions reflect Transsib Re’s improving risk-adjusted capitalization, good business profile within its main markets and stable underwriting performance. The balance sheet of Transsib Re was enhanced by significant capital injections towards the end of 2010 and during the first half of 2011. As a result, the company’s risk-adjusted capitalization has continued to improve, supported by large retained earnings in 2010. The capital injections were precipitated by changes in Russian regulatory capital requirements, which are effective from 2012.” Best also observed that “although net written premiums (NWP) declined by 10 percent in 2010, Transsib Re remains one of the major reinsurance companies in Russia by premium income. As the company seeks to maintain underwriting discipline in softer market conditions, it is anticipated that NWP in 2011 will further decrease. In particular, premium income from the motor book of business is expected to reduce. In the financial sector Best noted that “Transsib Re reported a pre-tax profit of RUR 47.9 million [$1.523 million] in 2010 (2009: RUR 50.6 million) [$1.61 million]. A decline in technical performance was offset by significant gains in the company’s investment portfolio. Whilst the loss ratio remained stable in 2010, the expense ratio increased to 34.8 percent (2009: 24.6 percent) as a result of ongoing maintenance and infrastructure work. Based on results to date, technical performance in 2011 is likely to improve due to continued portfolio pruning. At year end, pre-tax profit is expected to be enhanced by substantial unrealized gains on the company’s investment portfolio as well as a reduction in foreign exchange losses.” Best said: “Upward rating pressures may arise in the medium term if there were sustained improvements in Transsib Re’s business profile, and both risk-adjusted capitalization and operating performance were maintained according to business plans. Downward rating pressures may be triggered by a worsening of Transsib Re’s risk-adjusted capitalization or a deterioration in its underwriting or overall results. In addition, a decline in the country risk tier of Russia may also have a negative impact on the ratings.”
A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Guam-based Tokio Marine Pacific Insurance Limited (TMPI), both with stable outlooks. “The ratings reflect TMPI’s adequate risk-based capitalization and the explicit support from its parent company, Tokio Marine & Nichido Fire Insurance Co., Ltd (TMNF),” Best said. “The ratings also recognize the company’s dominant position in the group accident and health sector in Guam, primarily driven by the Government of Guam account. TMPI’s risk-based capitalization in 2010 was adequate, supported by consistent growth in surplus, continuous favorable operating results and no dividend payout. TMPI receives support from TMNF in the form of a financial guarantee, reinsurance capacity and catastrophe modeling.” As a partial offsetting factor Best cited “the underwriting volatility associated with the deterioration trend of the claims experience of TMPI’s major line of business—group accident and health—in recent years. The group accident and health line had experienced a steady unfavorable development between 2007 and 2010, resulting in an increase of the overall loss ratio over the same period. Initiatives taken in the third quarter of 2010, including increased pricing and coverage modifications, had contributed to the improvement of the claims experience of this line and of the overall loss as demonstrated by the third quarter result.” However, Best also indicated that the “sustainability of TMPI’s operating profitability and risk-based capitalization is subject to its ability to control the development trend of the loss ratio from its core business line to support satisfactory surplus growth for its underwriting risk.”
A.M. Best Co. has commented that the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of MAPFRE PANAMA S.A. are unchanged following the rating downgrades related to its parent company, MAPFRE S.A. (Spain), and the majority of its United States domiciled subsidiaries. The outlook for both ratings is stable. Best explained that the aforementioned rating actions “were driven by both MAPFRE S.A.’s exposure to investments in several peripheral euro zone economies, in particular Spain and Portugal. The rating actions also reflected MAPFRE S.A.’s exposure to commercial property in Spain through its investment holdings.” Best added that it “believes that these concerns regarding MAPFRE S.A. currently do not have a material effect on the ratings of its Panamanian subsidiary. Additionally, MAPFRE PANAMA S.A.’s balance sheet does not have any exposure to euro zone investments nor do the ratings reflect any direct enhancement from MAPFRE S.A. While the ratings of MAPFRE PANAMA S.A are unchanged and maintain a stable outlook, the possibility for negative rating actions could occur if there is additional negative rating action to its affiliated companies or a general worsening of its risk-adjusted capitalization or operating performance. Although upward rating actions on MAPFRE PANAMA S.A are unlikely at this point, potential positive rating triggers would include sustainable long-term improvements in the company’s operating performance in conjunction with continued capital and surplus growth.”
A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Lebanon’s Al Ittihad Al Watani (L’Union Nationale) Societe Generale d’Assurances du Proche Orient sal (UN). The outlook for both ratings remains positive. The ratings of UN “continue to reflect its solid prospective risk-adjusted capitalization, sound historical underwriting performance and improved investment strategy,” Best explained. However, the rating agency also said it has “taken into account the company’s modest franchise, deteriorating technical profits and its rudimentary risk management framework.” On the other hand Best indicated that the positive outlook for both ratings reflects its “expectations that UN will fully establish its ERM function in the next two to three years and that earnings will improve.” In Best’s opinion, UN’s prospective risk-adjusted capitalization is “strong with sufficient cushion to absorb any realistic growth over the next two years. The company’s risk-adjusted capital position has improved in recent years largely due to a de-risking of the investment portfolio as a result of the sale of a local hospital, the proceeds of which are held in deposits. The company intends to increase its exposure to equities in 2012;” however, Best said it has “stressed its Capital Adequacy Ratio, finding it sufficient to absorb such an adjustment in investment strategy. UN has historically generated good technical profits, regularly reporting combined ratios under 85 percent. However, the company’s technical income has come under increasing strain in recent years due to a combination of competition and increased claims incurred largely as a result of legacy medical business in Kuwait.” In Best’s opinion, “UN’s business profile is modest. Despite having a well diversified portfolio, the company has only limited market share in its three core markets.” Best also said that in its opinion, “UN’s risk management framework is rudimentary. However, management has acknowledged this weakness and has made some progress on the development of an enterprise risk management function, having instructed an international consultant to assist. The ratings and corresponding outlook of UN are likely to come under positive pressure should the company demonstrate that is has good control over technical performance, which is currently deteriorating, in addition to making significant improvements into the overall corporate governance and risk management framework. A material improvement in the company’s franchise would also generate positive rating pressure.” However, Best also indicated that the “ratings and corresponding outlook will come under negative pressure should technical performance continue to deteriorate, or should the company re-engage in an investment strategy, which Best could consider to “pose excessive risk to capital.”
A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of New Zealand’s Sovereign Assurance Company Limited, both with stable outlooks. The affirmation of the ratings “reflects Sovereign’s supportive risk-based capitalization, profitable operating performance and its leadership in the New Zealand life insurance market,” Best explained. “Continued profitability and higher earnings retention helped the company to increase its capital position in the year to June 30, 2011. While fiscal year 2011 after-tax profits were lower than in the prior year, higher earnings retention helped Sovereign to increase its capital position by 8.4 percent to NZD 668 million [US$530.6 million]. The company’s risk-adjusted capitalization remains stable compared to the prior year and supportive of its current ratings.” Best also pointed out that Sovereign “remains the market leader in the New Zealand life insurance market and has maintained a market share of around 29 percent to 30 percent of in-force premiums over the past five years. Like many of its peers, advisers are the company’s main distribution channel. Sovereign’s distribution benefits from its affiliation with ASB Bank. ” As partial offsetting factors Best cited the “challenges in new business generation, lower new business profitability and uncertainty in its potential capital position in relation to new solvency standards for life insurers in New Zealand. Competitive pressure on premium rates and the difficulty in passing on higher regulation costs have impacted the company’s new business profitability. Adviser sales capacity has been negatively impacted by an increased demand for regulatory training, and consequently, the company’s share of new business premiums declined in the year to June 2011. Lower new business growth is weighing on the company’s profitability, as fixed costs are spread over a smaller new premiums base. Like its peers, Sovereign faces a catastrophe risk charge for extreme events, such as a pandemic, under the Reserve Bank of New Zealand’s new solvency standards. This will increase the company’s capital requirements and could pressure its risk-adjusted capitalization. Management indicated that dividend policy flexibility and potential group support could help to mitigate the impact on the company’s risk-adjusted capitalization.”
A.M. Best Co. has placed under review with negative implications and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Malaysia’s Labuan Reinsurance (L) Ltd. Best explained that the “rationale for taking rating action at this point is largely attributable to the impact of the estimated net loss from the Thai flooding and of the loss from the company’s indirect participation to the run-off Lloyd’s Syndicate 1965 through ACAL Holdings Pte Ltd on the balance sheet strength of Labuan Re. Labuan Re is expected to report a historical net loss for fiscal year 2011, mainly arising from the two mentioned losses, which will significantly erode the company’s risk-based capitalization. Labuan Re is working on strengthening its risk-based capitalization.” Best added that its ratings of Labuan Re “will remain under review with negative implications until any action has been undertaken by the company. Factors that could result in a negative rating action include no improvement of the risk-based capitalization or further deterioration due to a significant increase in the loss from the Thai flooding.”
A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B++’ (Good) and issuer credit rating (ICR) of “bbb” of Hong Kong-based Tugu Insurance Company Limited. The outlook for the FSR is stable, and the outlook for the ICR is positive. The ratings reflect Tugu’s “consistently conservative investment strategy and management’s initiatives to strengthen its claims reserve practice and claims management process,” Best said. “Tugu maintains a stable portfolio mix, with cash and bonds accounting for 90 percent of its total invested portfolio over the past five years. It is expected that the company will continue to maintain a similar investment strategy going forward.” In addition Best noted that Tugu “widened its scope of third-party actuarial review to all lines of businesses in 2010, with future reviews scheduled to be conducted on a more frequent basis. In addition, Tugu has taken proactive steps to settle outstanding claims in relation to the motor and employees’ compensation businesses in Hong Kong. The favorable settlement results improved Tugu’s overall loss experience during the first eight months of 2011.” As partial offsetting factors Best cited Tugu’s “weakened risk-adjusted capital position and the volatility in its underwriting performance. Tugu’s capital and surplus decreased to US$44.6 million as of year-end 2010 from US$54 million as of year-end 2009, primarily due to the absorption of its after-tax operating losses and dividend payments during the year.” However, Best added that it believes Tugu’s “prospective risk-adjusted capitalization should remain adequate to support its overall risk profile, in view of the company’s anticipated modest premium growth and conservative investment portfolio over the next two years. Tugu’s underwriting results remained volatile over the past five years, including fiscal-year 2010, with the combined ratio ranging between 98 percent (2006) and 149 percent (2010) and a five-year average of 118 percent. Loss ratio increased to 107.3 percent for 2010, compared to 60.3 percent for 2009, mainly due to the additional reserve provision for its Hong Kong and treaty businesses, which came under a more stringent reserving approach during that year.”
A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of Arab Insurance Group (B.S.C.) (ARIG), which is based in Bahrain. The outlook of both ratings remains stable. ARIG’s ratings “continue to reflect its solid business position in the Middle East regional reinsurance market, its strong risk-adjusted capitalization and sound risk management,” Best said. However, the report also indicated that the ratings “remain confined by the company’s weak profitability and high reliance on investment income.” In Best’s opinion, ARIG “maintains a strong business profile in the Middle East, where it is recognized as a prominent regional reinsurer. In addition, over the last few years, the company has been diversifying its portfolio with a growing amount of international business. ARIG’s ratings continue to be confined by its weak profitability, which has traditionally relied on investment income in the absence of technical profits.” Best did indicate that it “acknowledges management’s efforts to improve its technical performance, the company’s 2011 technical results, to date, are poor having been affected by the large catastrophe events, in particular the Thai floods, which management estimates will generate ARIG a loss of between $6 million to $10 million on a net basis. Underwriting losses, combined with lower investment income will drive a significant loss for ARIG in 2011,” which Best estimates “may reduce the company’s capital by as much as $15 million.” However Best indicated that despite the reduction in capital, in its opinion, ARIG’s “prospective risk-adjusted capitalization remains strong with sufficient room to absorb growth of 5 percent to 10 percent over the next two years, in line with management’s expectations.” Best also said it believes ARIG “has continued to enhance its enterprise risk management framework, which is on par with the company’s regional reinsurance peers. The company has internal catastrophe and capital modeling capability that is supported by independent actuarial consultants. Positive pressure on the ratings and a corresponding outlook of ARIG is likely to arise should the company demonstrate a good track record of technical profitability. Equally, negative rating pressure may result from continued technical losses or further deterioration in risk-adjusted capital.”
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