Standard & Poor’s Ratings Services announced that it has lowered its long-term counterparty credit and financial strength ratings, on Canadian property and casualty insurer Co-operators General Insurance Co. (CGIC) to triple-‘B’-minus from triple-‘B’ with a negative outlook, and has removed them from its CreditWatch.
S&P said that the insurer financial strength rating reflects CGIC’s position as Canada’s third largest p/c insurer with around a 6 percent market share based on written premiums in 2001. S&P also noted CGIC’s satisfactory capitalization, strong asset quality, and liquidity.
The rating agency’s report indicated that CGIC is viewed as a core subsidiary of The Co-operators Group Ltd., and that “the ratings on CGIC are modestly enhanced by the diversity in earnings generated by the sister company, Co-operators Life Insurance Co.”
“The company’s financial strength rating and preferred stock rating reflect the very competitive business environment and the commodity-like nature of CGIC’s products,” stated S&P credit analyst Donald Chu. “In addition, the future consolidation that is expected to occur within the insurance and financial services industry, and the low barriers to entry for the P&C market will place continued pressure on CGIC’s asset growth and margins,” he continued.
CGIC writes mainly automobile, home, farm, and commercial insurance for individuals and small and midsize commercial clients. It posted a small operating profit for the first half of 2002. S&P said, however, that it “does not expect CGIC to achieve the level of Profitability in fiscal 2002 that would be required to maintain the triple-‘B’ financial strength rating, due to the continued deterioration seen in the claims expense environment in Atlantic Canada, Ontario, and Alberta.”
“The negative outlook reflects the challenges facing CGIC in achieving a reasonable growth and earnings target, given the intensely competitive environment and negative trends seen within the operating margins of the P&C insurance sector. Continued weakness in the global equity market and the low interest rate environment will continue to put further downward pressure on investment returns, which will compound the difficulties currently being experienced on the underwriting side,” said S&P.
It warned that, “The ratings on the company could be lowered again if it does not maintain its Minimum Capital Test (MCT) ratio at or above 150%, achieve a preferred dividend coverage ratio of at least 2.0 times, and a combined ratio of 110% or better for 2003.”
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