Ratings: Global Indemnity/Wind River Re, Connaught, Tugu Triple-S Propiedad, Arab Re

November 12, 2010

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘B+’ (Good) and the issuer credit ration of “bbb-” of Guernsey-based Connaught Insurance Company Limited, the captive insurance company of Thomas Greg & Sons Limited (TGS), a security printing specialist based in Columbia. The outlook for the ratings is stable. Best said the “ratings reflect Connaught’s adequate level of risk-adjusted capitalization and historically excellent underwriting performance. Offsetting factors include a restricted business profile and a potentially volatile underwriting performance. Best also noted that Connaught’s “underwriting performance has been maintained at an excellent level, with a combined ratio below 30 percent in four of the past five years.” Although the underwriting account has historically been profitable,
Best said it considers that with “Connaught’s small premium base, relatively large potential exposures and lack of reinsurance protection, a large claim is likely to result in an underwriting loss. Connaught’s adequate level of risk-adjusted capitalization is supported by a relatively large capital base of $14.2 million. Assets backing shareholders funds are generally of a good quality and liquid, with the exception of an intra group loan.” Best added that it believes that “Connaught has a restricted business profile. Premium income relates to only a handful of insurance policies from the TGS group, and this is unlikely to change in the near future.”

A.M. Best Co. has assigned an issuer credit rating (ICR) of “bbb” to Dublin-based Global Indemnity plc, and has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and ICRs of “a” of Bermuda-based Wind River Reinsurance Company, Ltd. and its U.S. subsidiaries. In addition Best has affirmed the ICR of “bbb” and debt ratings of the intermediate parent holding company, Cayman Islands-based United America Indemnity, Ltd. (UAI). Best noted that Global Indemnity is the newly formed ultimate parent holding company of Wind River Re. The outlook for all ratings is stable. The ratings reflect the “strong capitalization and diversified portfolio of specialty products provided on both an admitted and non-admitted basis by Wind River Re and its U.S. subsidiaries,” best explained. The ratings also reflect the “long-term historical profitability of the U.S. subsidiaries, which began operating under a single pooling agreement as of January 1, 2009, whereby they pool their premiums and liabilities and cede 50 percent of their combined net retained liabilities to Wind River Re. Wind River Re also continues to build a book of unaffiliated, third-party reinsurance business to complement the affiliated business. At the end of 2009, on a gross basis, the third-party business comprised just over 21 percent of Wind River Re’s total written premiums, with that proportion expected to increase in 2010. As offsetting factors Best cited the “combined operating results of the U.S. subsidiaries in recent years, driven by declining premium levels and increased infrastructure investments that have led to an increase in the expense ratio. Global Indemnity’s domestic infrastructure initiatives have included reorganizing geographically to help cultivate more fruitful and productive point-of-sale relationships with its distribution force. A portion of the premium decline is attributable to the planned discontinuation of relationships with agents and brokers that had been producing unsatisfactory results.” In addition best said that “recent reserve releases notwithstanding, management has been very conservative in posting reserves relative to established actuarial estimates. This conservatism has had somewhat of a limiting effect on underwriting results; however, operating results through the first half of 2010 have shown notable improvement.” Best summarized its rating actions as follows: The FSR of A (Excellent) and ICRs of “a” has been affirmed for Wind River Reinsurance Company, Ltd. and its following subsidiaries:
— Diamond State Insurance Company
— Penn-America Insurance Company
— Penn-Patriot Insurance Company
— Penn-Star Insurance Company
— United National Casualty Insurance Company
— United National Insurance Company
— United National Specialty Insurance Company
The following indicative ratings have been affirmed under the universal shelf registration:
United America Indemnity, Ltd.—
— “bbb” on senior unsecured debt
— “bbb-” on subordinated unsecured debt
— “bb+” on preferred stock

A.M. Best Co. has revised the rating outlook to positive from stable and affirmed the issuer credit rating (ICR) of “bbb” of Hong Kong-based Tugu Insurance Company Limited, and has affirmed Tugu’s financial strength rating of’ B++’ (Good). The outlook for this rating remains stable. Best explained that the revised outlook for the ICR reflects the “expected improvement in Tugu’s underwriting performance, which was affected by the volatility of the claims experience of the motor and employee compensation business generated in the Hong Kong market in the past five years. Going forward, the company expects that it will generate more business from PT PERTAMINA (PERSERO) and from Indonesia through Tugu’s immediate parent company, P.T. Tugu Pratama Indonesia (TPI), after Tugu became a wholly owned subsidiary of TPI in May 2010. Based on Tugu’s past underwriting portfolio, the business relating to PERTAMINA and business from Indonesia were in general more profitable than the business from the Hong Kong market.” Best added that the ratings also reflect Tugu’s “strong risk-adjusted capitalization, conservative investment strategy and diversified business portfolio.Tugu’s risk-based capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains strong for year-end December 2009. The company’s net premium leverage improved to 0.29 times in 2009 from 0.33 times in 2008.” In addition Best noted that Tugu has maintained “a liquid and prudent investment portfolio. In 2009, its asset allocation included 68.4 percent of total invested assets in cash and short-term bank deposits, 23.1 percent in fixed income securities and 1.7 percent in listed equities. The company’s liquidity ratios (total invested assets to total liabilities) improved to 1.05 times from 0.86 times over the past five years. A.M. Best expects that Tugu will maintain the conservative investment strategy, with an emphasis on cash and fixed income investments going forward. The affirmation of the ratings for Tugu is based on Best’s review of the financial statement of the company’s parent, TPI, as well as other available public information, including public credit ratings.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Triple-S Propiedad, Inc. (TSP), of San Juan, Puerto Rico, both with stable outlooks. The ratings reflect TSP’s “excellent capitalization, favorable operating profitability and well-established market presence within Puerto Rico,” said Best. “While profitable operating results have been driven primarily by solid investment income, the results have benefitted from favorable reserve development occurring on both an accident and calendar year basis.” As offsetting factors, Best cited “TSP’s geographic concentration of risk, the competitive operating environment in which it operates and its above average underwriting expense ratio. While the underwriting expense ratio reflects the high commission costs; the ratio remains in line with TSP’s local market peers. With all business written in Puerto Rico, the company remains exposed to frequent and severe weather-related events, as well as judicial and regulatory concerns.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘B+’ (Good) and issuer credit rating of “bbb-” of Arab Reinsurance Company S.A.L., which is based in Lebanon. The outlook for both ratings is positive. Best said the “rating actions reflect Arab Re’s “strong capital position and developing risk management framework. An offsetting factor is the deterioration in technical profitability in 2009.” Best said the positive outlook reflects, its opinion that the “2009 technical loss was a one off, with underwriting profitability expected to be restored in 2010. Furthermore, Arab Re’s profile is assisted by significant enhancements to its risk management framework (particularly related to underwriting risks), in addition to improving risk-adjusted capitalization.” Best added that in its opinion, Arab Re’s “capital position is expected to improve in 2010 with its paid up capital increasing by $10 million, achieved between reinvestment of dividends and fresh capital injection from its shareholders.” Best views this capital position as “strong enough to support the company’s projected growth, in addition to its prospective high dividend policy. In recent years, Arab Re has generated consistent and robust technical profitability. However, during 2009, Arab Re suffered from adverse loss experience with increased attritional losses and large claims impacting profitability. As such, Arab Re recorded a technical loss with a combined ratio above 105 percent in 2009 mainly stemming from its underperforming property portfolio.” Best believes “technical profitability will “improve in 2010, with the combined ratio expected to revert back below 100 percent following Arab Re’s cohesive assessment of its underwriting deficiencies and market opportunities. Moreover, overall earnings remained positive ($ 4.7 million in 2009), with stable returns achieved from Arab Re’s conservative investment policy yielding a 6 percent return on invested assets.” In Best’s opinion, Arab Re “remains a relatively small company in terms of premium base when compared to global reinsurers operating within the same markets. Despite facing significant competition, A.M. Best expects Arab Re to continue to improve its market visibility and reputation in its key markets.”

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