Ratings Recap: Tugu, Pacific Indemnity, Torus, SIAT, Farmers Mutual (NZ), MAPFRE (Puerto Rico)

June 24, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Hong Kong’s Tugu Insurance Company Limited with stable outlooks. Best said: The ratings reflect Tugu’s supportive level of risk-adjusted capitalization, diversified underwriting portfolio and conservative investment strategy. The company was adequately capitalized with a conservative net premium leverage of 0.27 times in 2007, an average of 0.35 times during 2003-2007. Best’s Capital Adequacy Ratio (BCAR), which measures capitalization on a risk-adjusted basis, reflects that the company has maintained an adequate risk-adjusted surplus level for its insurance and investment risks. Tugu’s financial flexibility is further enhanced by a comprehensive reinsurance program that limits its net exposure to catastrophe losses.” Best also indicated this level of risk-adjusted capitalization to be sustained in 2008-2009 with its expected business growth and conservative investment strategy.

A.M. Best Co. has revised the rating outlook to positive from stable for Guam-based Pacific Indemnity Insurance Company. Best also affirmed PI’s financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-“, Best explained: “The ratings reflect PI’s local market expertise in Guam, continued improvement in risk-adjusted capitalization and profitable operating results. The ratings also recognize PI management’s continued effort in managing its catastrophe exposures and improving its pricing mechanism. Favorable claim experience along with cautious control in expenses has led to a decline in PI’s combined ratio from 100.3 percent in 2006 to 84.8 percent in 2007. Improvement in underwriting profitability and a stable investment result strengthened the company’s net income to $1.521 million in 2007 from $227,000 in 2006. With the ongoing distribution support from its affiliate, Cassidy Associated Insurers Inc., PI is expected to consistently maintain its secured market position in the competitive Guam marketplace going forward.” Best added that “because of the favorable economic outlook in Guam due to the plans for U.S. military buildup, PI, as a U.S. Treasury-approved surety company for federally funded projects, is expected to increase its presence in the sector of contractors.”

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘A-‘ (Excellent) and an issuer credit rating (ICR) of {{dq2}} to Torus Insurance (UK) Limited and Torus Insurance (Bermuda) Limited. Best also assigned an ICR of {{dq3}} to Bermuda-based Torus Insurance Holdings Limited. All of the ratings have a stable outlook. Best explained that Torus is a newly created, Bermuda-based holding company of two newly established insurance companies, Torus UK, an FSA registered UK company, and Torus Bermuda, a Class-4 insurer domiciled in Bermuda. Torus has been initially capitalized with approximately $700 million of common shareholders’ equity, which has been provided by First Reserve Corporation, a private equity fund manager with a 25-year history of investing exclusively in the energy industry (including energy-related financial and insurance businesses). Initially, all of the group’s business will be written by Torus UK. “However,” Best noted, “Torus Bermuda will operate as a recipient of the majority of the group’s risk through a 65 percent quota share and an aggregate stop loss of Torus UK. The group’s initial business plan encompasses offshore and onshore energy risks, power and utility risks, and engineering-intensive property insurance. The account written will be focused on risks in North America, Europe, Australasia and the Middle East.”

Standard & Poor’s Ratings Services has raised its financial strength and long-term counterparty credit ratings on Italian non-life insurer SIAT (Societa Italiana Assicurazioni e Riassicurazioni pA) to ‘BBB’ from ‘BBB-‘ to include one notch for support from insurance group Fondiaria-SAI SpA (rated BBB+/Positive/–). {{dq6}}said S&P. The outlook for the rating is stable. This reflects S&P’s “expectation that centralization of the group’s transport business will reinforce the subsidiary’s competitive position,” stated credit analyst Gauthier Bollini. “We expect operating performance to improve slightly due to SIAT’s exit from underperforming nonmarine lines and synergies it derives from its role as the specialist marine insurer within the Fondiaria-SAI group,” S&P continued. “We expect SIAT to maintain good capitalization, in line with management’s traditionally cautious approach to risk-taking. We might raise the ratings if SIAT can demonstrate sustained improvement in operating performance, supported by reduced dependence on reinsurance, while maintaining good capitalization. Conversely, weaker capital and/or operating performance could place downward pressure on the ratings.”

A.M. Best Co. has revised its rating outlook to positive from stable for New Zealand’s Farmers’ Mutual Group (formerly Farmers’ Mutual Insurance Association) (FMG) and its core subsidiary, FMG Insurance Limited (FMGIL). Best also affirmed FMG’s and FMGIL’s financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of {{dq10}} said Best. “The ratings also consider the positive impact on risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), of FMG’s continued reorganization of business. The revision of the group’s rating outlook reflects its stable earnings prospects and the expected growth in its risk-adjusted capitalization. FMG’s risk-adjusted capitalization exhibited reasonable growth during the year, due mainly to the positive group operating performance. FMG’s combined ratio remained above 100 percent due predominantly to weather-related claims; however, its operating results remain profitable due to good investment returns. The rating recommendation is supported by FMG’s adequate BCAR.

A.M. Best Co. has upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating of ‘A’ (Excellent) of MAPFRE PRAICO Group and its group members, which consist of the lead company, MAPFRE PRAICO Insurance Company and its wholly owned subsidiary, MAPFRE Preferred Risk Insurance Company, as well as an affiliate company, MAPFRE Pan American Insurance Company, whose businesses are significantly reinsured by MAPFRE PRAICO Insurance Company. The outlook for all ratings is stable. All companies are domiciled in San Juan, Puerto Rico.
“The rating affirmations reflect the group’s excellent capitalization, solid operating performance and leading market position in Puerto Rico,” said Best. “These positive rating factors are derived from the group’s sound underwriting results and consistent investment income, which have resulted in strong overall earnings and additions to surplus for five consecutive years. In addition, the group maintains a strong market position as one of the leading insurance writers on the island of Puerto Rico. The ratings also reflect the group’s solid brand name and its integral role as a member of MAPFRE, the largest insurance group in Spain.”

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