Ratings Recap: WUEBA (Chartis), Solid, West of England Club, Coface, InterGlobal

December 11, 2009

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘B++’ (Good) and issuer credit rating (ICR) of “bbb” of German insurer Wuerttembergische und Badische Versicherungs-AG (WUEBA) and assigned an NR-5 (Not Formally Followed) to the FSR and an “nr” to the ICR. Best explained that “WUEBA’s insurance portfolio has been transferred to Chartis Europe S.A.
effective December 1, 2009, and WUEBA was de-registered as an insurance company on that date. The WUEBA portfolio will be renewed by the German branch of Chartis, and WUEBA will remain a trademark of Chartis in Germany.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B+’ (Good) and the issuer credit rating (ICR) of “bbb-” of Sweden’s Solid Forsakringsaktiebolag, both with stable outlooks. “Solid maintains good risk-adjusted capitalization,” Best noted. “In 2008, capitalization was supported by an injection from its parent company and by a reduction in intercompany loans. However, an offsetting factor continues to be Solid’s reliance on unrated reinsurance companies, particularly an unrated affiliated company based in Switzerland. Best indicated that it expects Solid’s profit before tax to “marginally decrease in 2009 from a resilient SEK 60 million ($7.7 million) in 2008. At the same time, the combined ratio is likely to increase from 89.6 percent in 2008, as the expense ratio is expected to deteriorate driven by Solid’s expansion into new territories and the launch of new products. However, Solid benefits from low claims in its main extended warranty portfolio (approximately 80 percent of gross written premiums), although this business is also characterized by high commissions paid to distribution partners, which are mainly retailers and brokers.” Best added that “Solid has established a strong niche position for extended warranty business in the Swedish market. Benefiting from this position and from an expansion into other specialty lines of business, gross written premiums are likely to grow marginally in 2009, from SEK 990 million ($127 million) in 2008.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of the Luxembourg-based West of England Ship Owners Mutual Insurance Association (WOE or the Club). The outlook for both ratings remains stable. Best said it expects the Club’s “risk-adjusted capitalization to remain strong in 2010. Following substantial investment losses in 2008, strong risk-adjusted capitalization was restored in the financial year ending February 2009 by supplementary calls to members on the 2006, 2007 and 2008 policy years. WOE has also decreased the proportion of equities in its investment portfolio, reducing the exposure to financial market volatility. Although the Club has financial flexibility from its ability to make supplementary calls, this is somewhat impaired following calls made in 2006 and 2008.” Best also noted that the “Club’s financial performance is expected to improve over the next two years, supported by investment income and improving underwriting conditions in the protection and indemnity (P&I) market. Additionally, decreased levels of global trade and lower commodity prices are expected to reduce the frequency and severity of claims made against the Club. However, the P&I market remains competitive, and although the Club is expected to increase the standard surcharge to members for the 2010 policy year, it is unlikely to produce an underwriting profit.” Best said it believes that WOE’s business profile “remains strong, supported by its membership of the International Group of P&I Clubs (International Group), the members of which insure approximately 90 percent of the world’s marine tonnage. However, should it become necessary for the Club to make a further supplementary call to its members, it is likely that some would withdraw tonnage from the Club and WOE’s profile within the International Group would be weakened. After several years of consolidation, there has been modest tonnage growth in 2009, particularly in Asia, where the Club already has a strong presence.”

Standard & Poor’s Ratings Services said today that it placed its ‘A’ long-term counterparty credit and insurer financial strength ratings on the core operating entities of French credit insurance group Coface on CreditWatch with negative implications. The core entities are France-based Coface S.A., Germany-based Coface Kreditversicherung AG, Italy-based Coface Assicurazioni SpA, U.S.-based Coface North America Insurance Co., Austria-based Coface Austria Kreditversicherung AG, and Germany-based Coface Finanz GmbH.S&P also placed the ‘A-1’ short-term ratings on Coface Kreditversicherung AG and Coface Finanz GmbH on CreditWatch with negative implications. “The rating action reflects our perception of increasing capital pressure at Coface,” explained credit analyst Marie-Aude Salinas. In 2008, Coface’s capital adequacy was “weak” based on S&P’s risk-based insurance capital model. “We believe that it is unlikely that Coface will be able to restore capital adequacy to levels we consider as ‘good’ over the next two years under our methodology, given its constrained earnings capacity due to the depressed economic environment,” Salinas added. S&P noted that in the first six months of 2009, “Coface reported a net loss ratio of 116 percent and a bottom-line loss of €117 million ($171 million), which will in our view contribute to a further decline of Coface’s capital adequacy in the near term in spite of the reduction of its exposure. While we acknowledge that Coface’s earnings have started to improve, as evidenced by a reported net loss ratio of 93 percent in the third quarter of 2009, we estimate that the company remained loss making in that period, thereby further depleting capital. Although we expect further significant improvements in earnings, this appears in our view insufficient to restore capital adequacy to levels consistent with the current rating in the absence of other offsetting measures.” In addition S&P said the €50 million [$73 million] capital injection received from parent Natixis S.A. in June 2009 did not in our view materially improve Coface’s capitalization. Low capital adequacy affects both our stand-alone view of Coface and the level of rating support it receives under our group rating methodology. We currently categorize Coface as strategically important to its parent under our criteria, and it receives two notches of uplift based on implicit support from Natixis.” S&P added that it expects to resolve the CreditWatch status by the end of December 2009, “once we have reassessed the elements supporting Coface’s strategic importance to Natixis, mainly capital adequacy. If the resulting analysis leads to a downgrade, we are unlikely to lower the ratings by more than one notch, based on our current view.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of the UK’s InterGlobal Insurance Company Limited, both with stable outlooks. The ratings reflect the company’s “good prospective operating performance, improving business position and adequate level of risk-adjusted capitalization, Best explained. In the rating agency’s opinion, InterGlobal has achieved a “good underwriting performance since inception, despite a rapid growth in premium income and challenging market conditions.” Best added that it anticipates that a “good level of operating performance will be achieved in both 2009 and 2010.” Best also said it “believes that InterGlobal is likely to continue growing premium income in 2010 and 2011, despite the currently difficult market conditions. InterGlobal benefits from a recognized and established brand in the Middle Eastern and Asian markets (initially established by InterGlobal Ltd., the Managing General Agent, which was InterGlobal’s predecessor) and has a growing business position in the international private medical insurance (IPMI) market for expatriates and high net worth individuals.” Best added that it considers InterGlobal’s level of risk-adjusted capitalization to be adequate in 2008 and 2009 and that it is “likely to improve slightly in 2010 with the full retention of earnings.” Best also said it believes that InterGlobal’s capital position is “protected by an outwards reinsurance cover with a highly rated reinsurance company and a conservative investment strategy.”

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