Ratings Roundup: Elwood, CIBC Re, Mapfre Praico, RenRe

June 10, 2009

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of “B++’ (Good) and issuer credit rating of “bbb” of Bermuda-based Elwood Insurance Limited. Best said: “Elwood’s ratings recognize its excellent capitalization level, history of positive operating performance, conservative loss reserving practices and effective management of exposures. Over the past five years, return on surplus has averaged 22.7 percent, while surplus levels have increased at a compound annual growth rate of 21.9 percent through the accumulation of net profits.” Best said, however that it is concerned “with the high balance sheet leverage of Elwood’s ultimate parent, Celanese Corporation, which could negatively impact the operations of its captive. Additional offsetting rating factors are Elwood’s exposure to some low frequency, high severity hazards in its risk profile, coupled with high gross limits and high net retentions” Nonetheless Best indicated that Celanese’s risk management team takes an “enterprise-wide approach to managing its risks and utilizing Elwood as an integral tool in this process.” Elwood has utilized its relationships and those of Celanese to develop a variety of unique and non-correlating third party exposures, which provide a favorable enhancement to its overall book of business. Nonetheless, Elwood’s long-term growth opportunities primarily depend on Celanese’s business success.

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of “B++’ (Good) and issuer credit rating of “bbb” of Bermuda-based Elwood Insurance Limited. Best said: “Elwood’s ratings recognize its excellent capitalization level, history of positive operating performance, conservative loss reserving practices and effective management of exposures. Over the past five years, return on surplus has averaged 22.7 percent, while surplus levels have increased at a compound annual growth rate of 21.9 percent through the accumulation of net profits.” Best said, however that it is concerned “with the high balance sheet leverage of Elwood’s ultimate parent, Celanese Corporation, which could negatively impact the operations of its captive. Additional offsetting rating factors are Elwood’s exposure to some low frequency, high severity hazards in its risk profile, coupled with high gross limits and high net retentions” Nonetheless Best indicated that Celanese’s risk management team takes an “enterprise-wide approach to managing its risks and utilizing Elwood as an integral tool in this process.” Elwood has utilized its relationships and those of Celanese to develop a variety of unique and non-correlating third party exposures, which provide a favorable enhancement to its overall book of business. Nonetheless, Elwood’s long-term growth opportunities primarily depend on Celanese’s business success.

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a”of Barbados-based CIBC Reinsurance Company Limited, both with stable outlooks. (CIBC Re) (Barbados). The outlook for both ratings is stable. CIBC Re is a life reinsurance subsidiary of Canadian Imperial Bank of Commerce, the fifth-largest commercial bank in Canada by assets. It mainly reinsures credit insurance policies underwritten by third-party life insurance carriers on consumer mortgages, loans and credit cards originated by CIBC’s Canadian branches; retrocedes those Canadian risks to several unaffiliated reinsurers; and accepts non-Canadian risks of equivalent magnitude from those unaffiliated reinsurers. “The ratings consider CIBC Re’s strong risk-adjusted capitalization, good liquidity relative to its medium-term insurance obligations and the in-force book of business that is diversified by geography and product type,” said Best. The rating agency also “believes that CIBC Re has the capacity to meaningfully grow premium volume given its relatively smaller size compared to peers. CIBC Re’s financial strength and attractive profit margins are based upon a focused strategy on its core creditor life business and a portfolio of high quality assets that are well matched to the company’s liability profile. The investment portfolio is entirely made up of current and short-term deposits with related parties.

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of MAPFRE PRAICO Group and its 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. Best said the “ratings reflect MAPFRE PRAICO Group’s strong capitalization, favorable operating performance and solid market presence in Puerto Rico. The positive rating factors are derived from the group’s steady stream of investment income, strong underwriting results and favorable reserve development. The group maintains a conservative underwriting philosophy and comprehensive reinsurance program, which protect surplus from shock losses and enhance stability of earnings. In addition, the ratings reflect the group’s solid brand name and integral role as a member of MAPFRE S.A., the largest insurance group in Spain. Partially offsetting these positive rating factors is the group’s geographic concentration of risk. As a property writer in Puerto Rico, the group’s capital is exposed to frequent and severe weather-related events. In addition, the group is exposed to judicial, regulatory and economic concerns as evidenced by the economic recession that began in 2006 and continues to place pressure on the group’s profitability. Nevertheless, MAPFRE PRAICO Group is one of the top three property writers on the island and continues to develop products and platforms that will benefit the organization’s future earnings and capital appreciation.”

Standard & Poor’s Ratings Services said that its ratings on Bermuda-based RenaissanceRe Holdings Ltd. (A/Stable/–; NYSE:RNR) and the company’s core operating subsidiaries (all rated AA-/Stable/–) “are not affected by the announcement of the appointment of Jeffrey D. Kelly as Executive Vice President and Chief Financial Officer (CFO) effective July 6, 2009.” S&P noted that Kelly previously served as CFO of National City Corp. from 2000 until his retirement on Sept. 30, 2008, and as the National City’s Vice Chairman from 2004 until July 9, 2008. He is also on the board of directors of Progressive Corp., where he serves as chairman of the Investment and Capital committee. Kelly succeeds Fred R. Donner, who is leaving RenaissanceRe for personal reasons to return to the U.S. Donner has been the Executive Vice President and CFO since July 2006 and will serve as an advisor to the company until Sept. 30, 2009, to assist during the transition.

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