Ratings Recap: HDI V.a.G/Talanx, TTB/TTI, Platinum Underwriters

May 21, 2014

A.M. Best has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit ratings of “a-” of Through Transport Mutual Insurance Association Limited (TTB) (Bermuda) and its subsidiary, TT Club Mutual Insurance Limited (TTI) (United Kingdom). TTB and TTI collectively trade as TT Club. The outlook for both ratings remains stable. “TTB’s ratings reflect its excellent consolidated risk-adjusted capitalization, strong reserving practices and specialist business profile,” Best said. “The ratings of TTI reflect the integral part it plays in TT Club’s strategy, as well as the reinsurance protection provided by TTB.” Best’s report also indicated that “TTB is expected to maintain excellent risk-adjusted capitalization, underpinned by stable operating performance. Capitalization is enhanced by a $30 million subordinated loan (issued in 2006). In addition, the club continues to set reserves with a significant margin above its internal actuary’s best estimate.” Best noted that “TTB benefits from a strong specialist business profile in the international transport and logistics insurance market, covering both property and liability risks for port, ship and logistics operators. Its business profile is supported by active involvement in loss prevention and risk management within the industry and by a superior service standard, which underpins a policyholder retention rate of over 90 percent.” As a partial offsetting factor Best cited the Club’s “reliance on reinsurance to support its relatively large maximum line size. The risks associated with high reinsurance dependence are partly mitigated by the high credit quality of the club’s reinsurers.” Best said: “TTB’s performance record is supportive of its ratings. The club is expected to continue to report financial year combined ratios of around 100 percent in most years, consistent with its historical five-year average combined ratio. As a mutual, the club is not pressured to generate high returns and TTB is expected to report pre-tax profits in most years in line with its performance record since 2009. TTB is well positioned at its current rating level. A factor that could lead to negative rating actions is a substantial deterioration in performance affecting TTB’s consolidated risk-adjusted capitalization.

A.M. Best has upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) of Germany’s HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G.), the ultimate mutual parent company of Talanx AG and its various subsidiaries. Best also revised the outlook for the ICRs to stable from positive; the outlook for the FSR remains stable. In addition Best has upgraded the ICR to “a-” from “bbb+” of Talanx AG, the intermediate management holding company for all HDI V.a.G. companies (collectively the Talanx Group). The outlook for these ratings is stable. The rating actions “reflect the group’s solid earnings in recent years, the improved financial flexibility since the completion of the initial public offering (IPO) by Talanx AG in October 2012 and the successful integration of the Warta and TU Europa acquisitions in Poland (which accounted for approximately 5 percent  of total business in 2013),” Best explained. The ratings also take into account “Talanx’s strong enterprise risk management culture, which has contributed to the group’s stability through soft market conditions and the global financial crisis. Talanx AG benefits from excellent consolidated risk-adjusted capitalization, supported by the proceeds of the IPO and good retained earnings in the last five years. The group aims to achieve a dividend pay-out ratio between 35 percent -45 percent of net income going forward, allowing enough earnings retention to fund future business growth.” Best noted that in 2013 “Talanx posted its best operating profits to date at €1.8 billion [$2.467 billion], supported by resilient investment results, which mitigated high claims in its primary business. The German Retail division was negatively impacted by unusually severe natural catastrophe losses. Despite some positive impact expected from the cost-cutting program, the domestic segment (which comprises a significant proportion of guaranteed life business) is forecast to remain under pressure from the low interest rate environment going forward. With a gross premium income of €28.1 billion [$38.525 billion] in 2013, Talanx AG maintains an excellent business profile within the German Industrial and International Reinsurance markets. In addition, the group’s recent strategic acquisitions have enhanced its business profile abroad. However, premium income in the German Retail division is likely to remain constrained prospectively as this segment continues to face challenges to improve profitability and redefine its business profile.” In conclusion Best said: “Positive rating actions on Talanx AG and HDI V.a.G. are considered unlikely in the near term. Downward rating movements could be triggered by a material reduction in Talanx AG’s risk-adjusted capitalization as a result of uncontrolled catastrophe claims or life business related losses.”

The ICRs have been upgraded to “a+” from “a” and the FSR of ‘A’ (Excellent) has been affirmed for HDI Haftpflichtverband der Deutschen Industrie V.a.G. and its following subsidiaries:

HDI-Gerling Industrie Versicherung AG

HDI-Gerling Welt Service AG

HDI-Gerling America Insurance Company

HDI Lebensversicherung AG

The debt ratings have been upgraded to “bbb+” from “bbb” for the following:

Talanx Finanz (Luxembourg) S.A. —

– €500 million [$685 million] 8.367 percent subordinated fixed to floating rate notes, due 2042

– €350 million [$480 million] 4.5 percent subordinated fixed to floating rate notes, due 2025

(The €350 million issuance was initially recorded under Talanx AG as it was guaranteed by this entity. A.M. Best has now administratively re-aligned this debt under Talanx Finanz (Luxembourg) S.A. It continues to be guaranteed by Talanx AG.)

The debt rating has been upgraded to “a-” from “bbb+” for the following:

HDI-Gerling Industrie Versicherung AG—

€250 million [$342.7 million] 7 percent subordinated fixed to floating rate notes, due 2024

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Platinum Underwriters Bermuda, Ltd. and its strategic affiliate, Baltimore-based Platinum Underwriters Reinsurance, Inc. Best also affirmed the ICR of “bbb” of Platinum’s holding company, Bermuda-based Platinum Underwriters Holdings, Ltd. and the debt ratings of Platinum Holdings and Platinum Underwriters Finance, Inc. (Delaware). The outlook for all ratings is stable. The ratings reflect Platinum’s “excellent risk-adjusted capitalization, stable management team, profitability-focused business strategy (which places a strong emphasis on cycle management) and solid enterprise risk management capabilities,” Best explained. “The ratings also consider the organization’s market profile and low financial leverage. Platinum continues to execute its cycle management strategy on its streamlined and efficient operating platform, which has benefited the company through the generation of strong historical long-term returns, while maintaining excellent risk-adjusted capitalization. Although the market conditions are very competitive, the company remains focused on disciplined underwriting, risk management and profitability.” As a partial offsetting factor Best cited its “concerns that Platinum’s resolute cycle management strategy may someday impede its ability to take optimum advantage of future market opportunities as they arise. While it may still be too early to fully evaluate the impact of such a strategy across the entire business cycle,” Best said it would “continue to monitor the organization’s business profile and market position.” In conclusion Best said: “Factors that could lead to an upgrading of Platinum’s ratings include sustained, long-term favorable operating profitability, coupled with maintenance of strong risk-adjusted capital levels. Factors that could lead to a downgrading of Platinum’s ratings and/or a revision of the outlook to negative include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to expectations and peers, significant adverse loss reserve development and/or a material decline in risk-adjusted capital.”

The following debt ratings have been affirmed:

Platinum Underwriters Finance, Inc.—(guaranteed by Platinum Underwriters Holdings, Ltd.)

– “bbb” on $250 million 7.50 percent senior unsecured notes, due 2017

The following indicative ratings available under the shelf registration have been affirmed:

Platinum Underwriters Holdings, Ltd.—

– “bbb” on senior unsecured debt

– “bbb-” on subordinated debt

– “bb+” on preferred stock

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