Ratings: Aspen, Allianz Risk Transfer, Inter Hannover UK, Transsib Re, Jordan Insurance

December 23, 2010

Standard & Poor’s Ratings Services has assigned its preliminary ‘BBB+’ senior debt, preliminary ‘BBB’ subordinated debt, preliminary ‘BBB-‘ junior subordinated debt, and preliminary ‘BBB-‘ preferred stock ratings to Aspen Insurance Holdings Ltd.’s recently filed universal shelf registration program. The ratings “reflect the group’s strong competitive position, strong enterprise risk management, strong operating performance, and strong capitalization,” said S&P. Offsetting these strengths are the group’s “continued focus on growth, in particular in lines which are under a degree of pricing pressure. In addition, the group has exposure to earnings volatility resulting from high-severity, low-frequency reinsurance lines. The universal shelf program is intended to replace the existing facility, which is set to expire later this month. This new facility maintains the group’s flexibility to issue securities quickly. That said, we do not expect management to draw down upon the facility in the near future. Following the recent $250 million debt issuance earlier this month, Aspen’s debt leverage and coverage ratios remain within our requirements for the current rating level. After a $200 million repurchase in November of this year, $192 million remains available under the approved repurchase program and can be exercised in the next two years. Standard & Poor’s would not expect use of the program to generate leverage or coverage constraints on the capital adequacy or rating.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” to Swiss-based Allianz Risk Transfer AG (ART), a subsidiary of Allianz Global Corporate & Specialty AG (AGCS AG). The outlook for the ratings is stable. “As the group’s alternative risk transfer unit, ART benefits from the support of its ultimate parent, Allianz Societas Europaea (Allianz SE),” said Best. The company is “integrated into its immediate parent, AGCS AG, in terms of business strategy and management. The ratings reflect both implicit support in the form of business integration as well as explicit support from AGCS AG in the form of reinsurance, including stop loss reinsurance.” Best also said it believes that ART “maintains good stand-alone risk-adjusted capitalization, reflecting some improvement as a result of the cessation of its alternative assets business in 2009. As in-force transactions in this portfolio are in run-off, ART’s exposure to alternative asset classes will decline, leading to a reduction in the company’s exposure to market risk. Capitalization also benefits from risk diversification within ART’s underwriting portfolio, particularly the company’s strategy with many of its structured transactions of writing offsetting risks creating a natural hedging effect within the portfolio.” In addition best noted that “despite the volatile nature of some of ART’s exposure, A.M. Best expects the company to produce relatively stable good underwriting results due to its portfolio diversification and effective use of reinsurance to manage exposure. Investment performance may be affected by fluctuations in the markets in the current uncertain environment, although ART’s cash holdings are expected to continue to support liquidity. The cessation of ART’s alternative assets portfolio will further improve performance stability going forward. ART’s independent status facilitates the underwriting of non-standard business within Allianz SE in a tax-efficient manner. The company has a strong profile in the alternative risk transfer market. Its association with AGCS AG enables it to offer non-standard products to major corporate clients. A significant proportion of its business is closely related to AGCS AG and to other Allianz group companies. The expiration of a large quota share reinsurance treaty is expected to provide an opportunity to transfer more Allianz group business to ART, including reinsurance written for other group companies.”

A.M. Best Europe – Rating Services Limited has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a+” of UK-based International Insurance Company of Hannover Limited (Inter Hannover). Best explained that it has changed the outlook to “reflect the positive outlook on the ratings of Inter Hannover’s parent company, Hannover Rueckversicherung AG (Hannover Re). The ratings reflect Inter Hannover’s importance to its parent as a source of primary insurance business. In addition, the company benefits from explicit parental support in the form of quota share reinsurance of both its single risk and delegated authority business.” In addition best noted that the ratings “reflect Inter Hannover’s stand-alone risk-adjusted capitalization, which is expected to remain strong. Further development of Inter Hannover’s single risk portfolio, as well as the addition of a number of new agency agreements, is expected to lead to a significant increase in gross premium in 2010. However a large proportion of this business is ceded to Hannover Re. Pretax profit is expected to improve in 2010, due in part to an increase in net premium income. In spite of reserve strengthening for delegated authority business, the combined ratio is likely to remain low, supported by commission income from Hannover Re on ceded business. Income from the company’s conservative investment portfolio is likely to be modest, reflecting the low interest rate environment. Inter Hannover’s business profile benefits from its links with Hannover Re, and integration between the business units of the two entities continues to increase. Inter Hannover writes large commercial single risks through its London and Scandinavian branches, as well as delegated authority business, which is focused on small commercial and personal lines business written primarily through European agencies and brokers.”

A.M. Best Europe – Rating Services Limited has upgraded the financial strength rating to ‘B’ (Fair) from ‘B-‘ (Fair) and issuer credit rating to “bb” from “bb-” of Russia’s OJSC Transsiberian Reinsurance Corporation (Transsib Re), and has revised then outlooks for both ratings to stable from positive. The rating actions reflect Transsib Re’s “improving risk-adjusted capitalization, good business position and its good but declining underwriting performance,” said Best. The main offsetting rating factors are its “weak enterprise risk management and ongoing investment volatility. Transsib Re benefited from a significant capital injection in late 2010 with additional money expected in early 2011. The company’s risk-adjusted capitalization has improved as a result and will be further augmented by the retention of profits.” Best said it believes that Transsib Re is “taking steps to improve its limited capital flexibility, which has hindered it in the past. In order to comply with Russian regulatory requirements that will come into force in mid 2012, Transsib Re will continue to be dependent on retained earnings.” The rating agency also noted that Transsib Re is one of the major reinsurance companies in Russia by premium income. Net written premiums (NWP) are expected to continue declining by 7 Percent in 2010 and reach RUB 607 million [$19.826 million] by year end. This is a continuation of the trend started in 2009 when NWP fell by 14 Percent and is part of a decision to reduce the company’s exposure in softening market conditions.” Best expects gross written premiums to be in the area of RUB 800 – 820 million [$26.128 to $26.78 million] in 2010. .Best also believes that based on 2010 results so far, “underwriting performance is likely to be marginal, but investment performance is likely to stabilize due to the reduced equity exposure and tentative financial market improvements. During 2009, Transsib Re’s underwriting performance remained good, despite the challenging market conditions. The company’s claims ratio fell to 65.2 Percent in 2009 as a result of its withdrawal from unprofitable contracts, and Transsib Re has seen an improvement in its investment income in 2009 whilst experiencing some ongoing unrealized losses. The company still does not have a functioning capital model. It has commissioned a consulting firm to begin modeling its own risks, and A.M. Best believes that although this process is in its initial stages, it could improve enterprise risk management in the future if successfully implemented.”

A.M. Best Europe – Rating Services Limited has upgraded the issuer credit rating to “bbb+” from “bbb” and affirmed the financial strength rating of ‘B++’ of Jordan Insurance Company Plc (JIC). The outlook for the FSR is stable and the outlook for the ICR has been revised to stable from positive. Best said the “rating actions reflect JIC’s leading business position in Jordan, strong and stable technical profitability and strong risk-adjusted capitalization. The company’s investment strategy remains an offsetting factor.” Best also indicated that it expects JIC to experience a moderate growth rate of between 5-7 Percent in 2010 with gross written premiums reaching JOD 42.5 million [app. $60 million] by year end as the impact of the financial crisis continues to affect the whole of the Jordanian market. While growth will accelerate in the following years it is likely to remain in single digit numbers. JIC remains the second largest insurance company in Jordan (measured by gross written premiums) with a well diversified product offering. JIC’s focus on technical profitability has resulted in market leading combined ratios of below 75 Percent over the last three years. The company’s robust underwriting performance will improve further in 2010 due to the lack of significant claims and the release of reserves for a large claim incurred in 2009. Claims ratios for all lines of business remain moderate while operating expenses are kept low mainly due to a lean operating structure and significant profit commission from the company’s reinsurers. Despite an aggressive investment strategy (focusing on equities and real estate) and significant reinsurance cessions, the company’s risk-adjusted capitalization remains strong. Counterparty risk arising from the reinsurance cessions is kept low, with the use of highly rated reinsurers, most notably Munich Re which is also a shareholder of the company. The highest risk to capitalization arises from the company’s investments which, in periods of financial crisis may prove to be less liquid than anticipated.”

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