S&P Assigns ‘A’ Rating to Gard P&I

December 16, 2003

Standard & Poor’s Ratings Services announced that it has assigned its ‘A’ long-term counterparty credit and insurer financial strength ratings to Assuranceforeningen Gard – gjensidig – (Gard p&i), the Norway-based protection and indemnity marine mutual club, with a stable outlook.

S&P said it had taken into account “Gard p&i’s announcement, on Oct. 28, of its intention to acquire and separately incorporate as a subsidiary the marine and energy (M&E) business of Swedish insurer If Property & Casualty Insurance Ltd. (publ) (If; A-/Stable/–).”

The rating agency said that “on the basis of detailed information supplied by both Gard p&i and If, Standard & Poor’s expects the transfer of ownership to be satisfactorily completed in early 2004.” It also indicated that it “believes that the M&E business will be of immediate strategic importance to Gard p&i and will be structured and resourced so as to merit prospective, indicative counterparty credit and insurer financial strength ratings of ‘A-‘ with a stable outlook.”

S&P credit analyst David Anthony stated:”The ratings on Gard p&i reflect the club’s excellent management and administration, as well as strong and highly specialized business positions in the Nordic and international P&I insurance markets. There is also the prospect of a leading position in international M&E if the proposed acquisition is completed.”

S&P also noted that the ratings “reflect Gard p&i’s strong capitalization and reserving, as well as the substantial benefits of its marine mutual structure. Partially offsetting these strengths, Gard p&i–like all marine mutuals–remains exposed to potentially substantial claims deriving either from its own policyholders or from its share of pooled losses originating from other members of the International Group of P&I clubs.”

The bulletin explained the “stable outlook on Gard p&i and the indicative stable outlook on the proposed M&E subsidiary” as reflecting “a number of expectations. The principal of these is that the M&E acquisition will be satisfactorily completed in early 2004, the opportunities and strains inherent in the move having been fully factored into the current ratings.”

The bulletin noted that, if the acquisition were to fail for any reason, “it is unlikely that the ratings would be raised as Gard p&i may then consider alternative strategies to develop its activities.” S&P also said it “expects that the integration of the M&E operations alongside Gard p&i under the Gard Services banner will proceed smoothly as synergies and cross-selling opportunities are harnessed.”

The bulletin added that “Gard p&i is expected to report strong results into the medium term, with overall combined ratios not exceeding 104 percent for the 2003/2004 and 2004/2005 policy years, despite the continuance of highly conservative incurred but not reported reserving, with previously loss-making activities such as downstream energy and some non-Finnish business written out of Helsinki having already ceased. The proposed M&E operation will likely return combined ratios of less than 100 percent for 2004 and 2005 if successfully acquired. Finally, risk-based capitalization across the P&I and M&E operations will be maintained at strong levels.”

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