Ratings Recap: Samsung Europe, Transmonde, MAPFRE PRAICO, Ocaso

April 15, 2014

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of UK-based Samsung Fire & Marine Insurance Company of Europe, Limited (SFME), both with stable outlooks. Best said SFME’s ratings “reflect its excellent risk-adjusted capitalization, which is expected to support its growth plans. In addition, the ratings factor in the strong support SFME receives from its parent, Samsung Fire & Marine Insurance Co. Ltd (SFM), which provided SFME’s initial capital of £10.6 million [$17.71 million] in 2011. SFM provides substantial reinsurance protection to SFME on a facultative basis and through participation in surplus share and per risk excess of loss treaties.” Best also noted that “SFME reported an exceptional profit before tax of £3.1 million [$5.18 million] in 2013, driven by a strong technical result. The combined ratio was 47 percent, reflecting a benign claims environment, a strong reserve release and high net reinsurance commission income. For 2012, which was SFME’s first full year of operation, the company also reported a good profit before tax of £1.1 million [$1.838 million], driven by an excellent combined ratio of 82 percent. “As a small company writing large risks, SFME is highly dependent on reinsurance. Although the risks associated with this are partly mitigated by the good credit quality of its reinsurers, it is an offsetting factor for the ratings.” Best explained that “in 2013, the majority of SFME’s business was comprised of the insurance of Samsung group operations in Europe. In addition, SFME insured a small amount of third-party Chinese, Korean and Japanese risks within Europe, and locally sourced business. Portfolio diversification is expected to continue over the coming years, as SFME expands its external business. As a subsidiary of SFM and part of the Samsung group, a South Korean conglomerate, SFME benefits from an excellent business profile within its target market. Factors that could lead to positive rating actions include enhanced support from SFM. Factors that could lead to negative rating actions include a significant decline in SFME’s risk-adjusted capitalization, weaker than expected operating performance or deterioration in the support provided by SFM.”

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Bermuda-based Transmonde Services Insurance Company, Limited, both with stable outlooks. The ratings reflect Transmonde’s “historical strong operating performance, excellent risk-adjusted capitalization and ability to generate net underwriting income and net income in recent years,” Best explained. “These factors have allowed Transmonde to enhance its surplus considerably.” As partial offsetting factors Best cited “Transmonde’s relatively high retentions and concentration in liability lines with significant loss severity potential. An additional offsetting rating factor is its limited market profile as a single parent captive. Transmonde provides professional, general and pollution liability coverages to members of the International Association of Superintendents, which is a subsidiary of SGS SA (SGS) [SWX: SGSN], a publicly traded Swiss company.” Best’s report also noted that “Transmonde has maintained very conservative underwriting leverage ratios as surplus has consistently grown to support its business volumes. The company has posted low loss and loss adjustment expense ratios, reflecting SGS’ effective risk management. Transmonde’s relatively high per occurrence retentions are mitigated by significant deductibles and conservative reserving practices. The ratings recognize the company’s balance sheet strength and conservative underwriting leverage measures as well as its role as the captive insurance company of SGS.” In  conclusion Best said that although it “believes Transmonde is well positioned at its current rating level, factors that may lead to negative rating actions include unfavorable operating profitability trends, outsized investment losses and a significant decline in its risk-adjusted capital that would not be supportive of its current rating level.”

 A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” for MAPFRE PRAICO Insurance Company, its wholly owned subsidiary, MAPFRE Preferred Risk Insurance Company, and an affiliate, MAPFRE Pan American Insurance Company, collectively known as the MAPFRE PRAICO Group (MPG). The outlook for all ratings is stable. All of the companies are domiciled in San Juan, Puerto Rico. Best said its ratings for MPG reflect its “excellent capitalization, solid operating performance historically driven by investment income, long history of profitable underwriting results, established market presence within Puerto Rico and strong risk management practices. The ratings also reflect MPG’s strong brand-name recognition within the Puerto Rico market, and integral role as a member of MAPFRE S.A. (MAPFRE), the largest insurance group in Spain. The revised outlook reflects stabilizing economic conditions in Spain, where MAPFRE has material investment and underwriting exposure.” As partial offsetting factors Best cited “MPG’s geographic risk concentration, which exposes capital to potential frequent and severe weather-related events. Additionally, operating almost exclusively within Puerto Rico exposes the group’s results to potential changes within the judicial, regulatory and economic climate.” In addition best noted that “MAPFRE has a strong level of risk-adjusted capitalization and has generated robust overall earnings in recent years, despite extremely challenging economic conditions in its local market. MAPFRE remains heavily exposed to the Spanish economy, with Spanish debt accounting for 40 percent of the group’s €40 billion [$55.2 billion] of invested assets at December 31, 2013. While economic headwinds such as high unemployment and a continued soft housing market persist, Spain is showing early signs of economic recovery. In addition, while Spain’s government debt remains elevated, Spanish, and more generally, European, financial markets have stabilized over the past year, easing the debt burden. Although Spain is a core insurance market for MAPFRE, its operations are well diversified geographically, particularly in the Americas. Furthermore, MAPFRE’s Spanish insurance business has been resilient and continues to perform strongly.” Best indicated that it “feels the current ratings of MPG are properly positioned and does not anticipate upward movement in the near term. However, negative rating actions could occur should risk-adjusted capitalization weaken considerably due to investment losses, a significant increase in catastrophe-related losses, or a significant, sustained deterioration in operating performance. Additionally, there could be negative rating pressure if there is further deterioration or volatility within the Spanish economy.”

A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Spanish insurer Ocaso, S.A. Seguros y Reaseguros. Best said the ratings reflect “Ocaso’s excellent risk-adjusted capitalization and long record of strong financial performance. The revised outlook reflects the stabilizing economic conditions within Spain, to which Ocaso has material investment and underwriting exposure.” Best’s report also noted that “Ocaso’s operating performance has been resilient in recent years, despite the prevailing weak economic conditions in Spain. Ocaso has a strong domestic brand and a stable insurance portfolio. Prospectively, the company is expected to continue to produce strong earnings supported by robust underwriting performance. Ocaso has an excellent level of risk-adjusted capitalization, which has been strengthened in recent years via the retention of profits.” The report also indicated, however, that “Ocaso remains heavily exposed to Spanish sovereign debt via its investment portfolio. While economic headwinds such as high unemployment and a continued soft housing market persist, Spain is showing early signs of economic recovery. In addition, while Spain’s government debt remains elevated, Spanish—and more generally, European—financial markets have stabilized over the past year, easing the debt burden. Negative rating pressure could occur if there is significant erosion of Ocaso’s risk-adjusted capitalization or further deterioration in the Spanish economy. Upwards rating movement is unlikely at present.”

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