S&P’s Rates Bluewater ASA ‘BBB-‘; Outlook Stable

Standard & Poor’s assigned its triple-‘B’-minus counterparty credit and insurer financial strength ratings to Oslo-based start-up marine insurer Bluewater Insurance ASA (Bluewater). The outlook is stable.

“The ratings reflect Bluewater’s strong initial capitalization and experienced management team, offset by the company’s dependence on reinsurers and its start-up business position in the Norwegian marine insurance market and consequent lack of operating track record,” analyst Rob Jones said.

Bluewater is backed by 36 investors who mainly have interests in the Norwegian shipping sector, one of the largest marine insurance markets in the world. When rating a start-up insurer, where there is no track record, Standard & Poor’s places great emphasis on its review of the company’s business plans, discussions with the company’s management and investors, and examination of the company’s capital base. Bluewater’s capital adequacy is strong.

Although current capital of Norwegian krone (Nkr) 250 million ($32.5 million) is small in absolute terms, Bluewater’s initial capital adequacy on a relative basis is extremely strong according to Standard & Poor’s risk-based model, and is expected to remain extremely strong going forward. Capitalization is well protected by reinsurance for 2002, and this reinsurance protection is expected to continue beyond 2002, thereby protecting capital while the company establishes its franchise.

As a start-up, Bluewater lacks competitive advantages. Although the company will provide more capacity and choice to the Norwegian marine sector—which has suffered many withdrawals recently—and will benefit from the hardening rate environment, Bluewater will be challenged to develop a sustainable franchise in a line of business that is highly cyclical and has suffered from inadequate rates for many years. The company will benefit from management’s good relationships in the Norwegian marine insurance sector, and is forecast to write gross premiums of approximately Nkr140 million in 2002.

“Although the ratings on Bluewater are constrained by the company’s lack of operating track record, operating performance is expected to be strong in 2003,” Jones said. “The sustainability of that operating performance over the long term will require a very disciplined approach to underwriting if the market cycle, as expected, begins to turn. A combined ratio of 125 percent is expected for 2002, but this is expected to decrease sharply toward 100 percent in 2003.”

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