Ratings Recap: Tokio Marine Pacific, Malaysian Re, Kazakhinstrakh, Ansvar

January 7, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Guam-based Tokio Marine Pacific Insurance Limited (TMPI), both with stable outlooks. The ratings reflect TMPI’s “consistent growth in surplus and dominant position in the group accident and health sector in Guam,” Best explained The ratings also “consider the explicit support from its parent company, Tokio Marine & Nichido Fire Insurance Co., Ltd, in the form of a financial guarantee and reinsurance as well as the catastrophe modeling. Except for its first year of operation, TMPI has recorded positive underwriting results, which contributed to its surplus growth in 2009.” As partial offsetting factors Best cited the “underwriting volatility associated with the deterioration trend of the claims experience of TMPI’s major line of business—group accident and health. The group accident and health line has experienced a steady unfavorable development over the last three years, resulting in an increase of the overall loss ratio over the same period. Initiatives taken in third quarter 2010 are expected to improve the claims experience of this line in 2011 due to increased pricing and coverage modification. The sustainability of TMPI’s operating profitability and risk-based capitalization is thus subject to its ability to generate sufficient income from its core business line to support satisfactory surplus growth for its underwriting risk.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Malaysian Reinsurance Berhad (Malaysian Re), (Malaysia) ), both with stable outlooks. The ratings reflect Malaysian Re’s “consistently profitable underwriting performance, prudent investment portfolio and adequate capitalization,” said Best. The company is a key subsidiary of Malaysia’s MNRB Holdings Berhad (MNRB Group), and the ratings “acknowledge this group synergy and administrative support. Malaysian Re has consistently maintained profitable underwriting results, as evidenced by the below 100 percent combined ratio over the past five years.” Although the company’s combined ratio had demonstrated an upward trend in the past three years due to the relatively poor loss ratio of its overseas portfolio, Best said it believes that “Malaysian Re’s underwriting performance will remain profitable going forward given that its major business is generated from Malaysia, where the company will continue to enjoy the voluntary cessions, which in general are more profitable. Given Malaysian Re’s prudent investment strategy, approximately 68 percent of its total assets were invested in cash and fixed income securities as of March 31, 2010,” Best said it expects that “the company will achieve a stable investment income going forward. In addition, 64 percent of its interest-bearing investments are due within one year only, and 88 percent of its bond investment carries ratings of “a” or above.” As partial offsetting factors, Best noted “a deteriorated loss ratio, keen competition in overseas markets and potential capital demand from sister companies. Given that Malaysian Re is expanding its overseas portfolio, more capital is required to support its growth going forward.” Best also said it anticipates that “any potential capital support related to the expansion of MNRB Group’s subsidiaries would exert pressure on Malaysian Re’s risk-adjusted capitalization.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘B+’ (Good) and an issuer credit rating of “bbb-” to Joint Stock Company Subsidiary Insurance Company of Halyk Bank of Kazakhstan Halyk-Kazakhinstrakh, both with stable outlooks. The ratings reflect the company’s “good business position, robust financial performance and excellent capitalization. Offsetting factors are the company’s insufficient loss modeling and potential exposure to non-rated insurers and sub-investment grade securities.” Best explained that Kazakhinstrakh is “one of the three largest insurers in Kazakhstan by premium income.” The rating agency expects gross written premiums to be in the area of KZT 14 billion [$95 million] in 2010 as the company takes advantage of the recovery of the Kazakh economy and cross-selling opportunities with its banking parent. This is a rise of 11 percent on the previous year, when revenues were suppressed as a result of the financial crisis affecting the Kazakh insurance market. A similar level of growth is anticipated for the following year and will be derived from local business.” Best forecast Kazakhinstrakh’s pre-tax profits “to reach KZT 2 billion [$13.6 million] in 2010 as a result of good underwriting results and a return to profitable investment returns after the turmoil of the previous year. The company’s combined ratio is expected to be in the 87 percent-93 percent range, which, although slightly lower than the prior year as a result of 2009’s favorable loss experience, remains strong and is expected to continue in 2011.” Best also noted that Kazakhinstrakh’s risk-adjusted capitalization “has benefited from capital injections from its parent in 2009 and 2008. The company’s relatively high level of capital and surplus enables it to continue with its current growth plans and dividend policy whilst remaining supportive of the current ratings. The company is exposed to some reinsurers of low credit quality as well as some sub-investment grade debt securities in the local Kazakh market.” Currently, Kazakhinstrakh uses its own catastrophe exposure modeling, which, Best said in its opinion, “is unsophisticated compared to international standards and could leave Kazakhinstrakh adversely affected by major loss events.”

A.M. Best Europe – Rating Services Limited has withdrawn the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of UK-based Ansvar Insurance Company Limited, and has assigned an NR-3 to the FSR and an “nr” to the ICR. Best explained that the rating actions “follow the transfer of Anvar’s assets and liabilities to Ecclesiastical Insurance Office plc (EIO) by means of a Part VII transfer on 1 January 2011. Ansvar is now a business division of EIO rather than a separate subsidiary.”

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