Ratings Recap: Lancashire (notes), Adamjee, Milli Re

A.M. Best Co. has assigned a debt rating of “bbb” to $130 million 5.70 percent senior unsecured fixed interest notes due in 2022 of the recently filed offering by Bermuda-based Lancashire Holdings Limited. The net proceeds from the debt issuance will be used for general corporate purposes.

A.M. Best Europe – Rating Services Limited has affirmed and removed from under review with negative implications the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of Pakistan’s Adamjee Insurance Company Limited, both with stable outlooks. Best noted that it had previously placed Adamjee’s ratings under review with negative implications “pending confirmation that catastrophe excess of loss cover was increased to sufficiently protect its capital base. Adamjee has since purchased an additional two layers of catastrophe excess of loss cover, raising its limit to PKR 12.3 billion ($128 million). Some spillover is still expected in a 1/250 year event;” however, Best added that in its opinion, “Adamjee has sufficient capital to absorb such an event.” Best also said it “believes further negative rating actions are likely in the event that Adamjee does not maintain sufficient reinsurance cover or there are further risk management weaknesses. Positive rating actions are considered to be unlikely in the near term.”

A.M. Best Europe – Rating Services Limited has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and the issuer credit rating to “bbb-” from “bbb” of Turkey’s Milli Reasurans Turk Anonim Sirketi. The ratings also remain under review with negative implications. Best said it downgraded the ratings “based on a full assessment of its capital position following large losses in 2011, which occurred as a result of catastrophic events, the ongoing poor performance of some local business lines, a change in reserving methodology, and the fair value revaluation of its subsidiary, Anadolu Anonim Turk Sigorta Sirketi. These events drove Milli Re’s unconsolidated total capital and surplus down 43 percent to TRY 461.6 million at year-end 2011 ($240 million). Milli Re’s capitalization improved in the first-half of 2012, with total capital and surplus growing to approximately TRY 565 million ($295 million).” Best added that in “giving full credit for hidden reserves in the company’s property portfolio, Milli Re’s risk-adjusted capital on an unconsolidated basis is considered to be adequate. However, on a consolidated basis, Milli Re’s risk-adjusted capital position is significantly weaker, and as such, Best has maintained the under review status for the ratings.” In addition to Best’s assessment of Milli Re’s capitalization, “the ratings also reflect its excellent domestic profile, historically poor technical performance, potential risk management weaknesses and the country risk associated with Turkey.” Best noted that Milli Re was established in 1929, and is Turkey’s sole local reinsurer, with a capacity to fulfill approximately 25 percent of the country’s reinsurance needs. In Best’s opinion, “Milli Re is uniquely placed in the market and enjoys a sound domestic franchise. However, intensive competition in the Turkish reinsurance markets remains a key driver of Milli Re’s poor technical profits. Catastrophic losses in 2011 also contributed to the company’s very poor combined ratio, which even allowing for the effect of the change in reserving methodology rose to circa 125 percent.” Best explained that while it “views Milli Re’s poor technical performance in 2011 as a potential signal of risk management weaknesses,” it nonetheless “acknowledges the steps taken by management to tighten underwriting controls and improve technical profitability in 2012. These include the withdrawal from the Turkish health business, substantially scaling back its involvement in the Turkish motor business and the pruning of its international portfolio, which subsequently is expected to drive a reduction in the company’s gross written premiums for 2012. The ratings of Milli Re incorporate the perceived risk associated with operating within Turkey.” Best said it has “assigned a country risk tier of four to Turkey due to its high political and financial system risks and moderate economic risk. Milli Re’s ratings are likely to be further downgraded in the event that its consolidated risk-adjusted capital position does not improve in the next four to six months. Positive actions on Milli Re’s ratings are likely to be driven by improvements in its technical performance, risk-adjusted capitalization and risk management.”