Ratings Recap: Tunis Re, National Grid, Endurance (repurchase), Caribbean Alliance, La Colonial, RoyalStar

January 26, 2011

A.M. Best Europe – Rating Services Limited has placed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Société Tunisienne de Reassurance (Tunis Re) under review with negative implications. Best said the rating action “reflects the impact of the recent political unrest in Tunisia on Tunis Re’s operations. Tunis Re is based and sources 68 percent of its business from Tunisia. Although Tunis Re’s daily operations have not been affected, it is currently impossible to determine the long term effect that this will have on the company’s operations and liquidity, especially in light of the suspension of trading activity on the Tunisian stock exchange and the country’s ongoing efforts to form an interim government.” Best added that it would resolve the under review status “once there is further clarity regarding the political situation in Tunisia.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” National Grid Insurance Company (Isle of Man) Limited (NGIC). The outlook on both ratings is stable. The ratings reflect the company’s “strong risk-adjusted capitalization and robust business profile due to the position of the captive within the parent’s risk management strategy,” said Best. As an offsetting factor, Best cited the company’s “volatile technical performance. The volatility of the company’s technical profitability is anticipated given the liabilities that NGIC covers.” However, Best also said it “believes that the captive is taking steps to stabilize results going forward with increases in rates on renewals and raising policy deductibles where appropriate.” Best expects NGIC to remain “a key element of National Grid plc’s mechanisms for dealing with risk transfer, and the anticipation is that business mix should remain largely unchanged. The company’s comprehensive reinsurance program, which involves reinsurers highly rated by A.M. Best, is also key in capping the impact of any large losses.”

Standard & Poor’s Ratings Services announced that its ratings on Bermuda-based Endurance Specialty Holdings Ltd. (BBB+/Stable/) and its operating subsidiaries are not affected by the announcement that “Endurance has entered into an agreement to repurchase the ordinary shares and options held by two affiliated funds of Perry Corp., which was a founding shareholder of Endurance. Endurance is repurchasing 7,143,056 ordinary shares and options to purchase an additional 10,000 ordinary shares. The company is using existing cash on hand to fund this transaction, with an aggregate repurchase price for the shares and the options of about $322 million.” S&P noted that the repurchase “is separate from Endurance’s existing 7 million share-repurchase program that its board of directors authorized in August 2010. The repurchase of the ordinary shares is approximately 15 percent of the total Endurance ordinary shares outstanding as of Dec. 31, 2010 and about 11 percent of Endurance shareholders’ equity as of Sept. 30, 2010. Despite the size of this repurchase, we expect Endurance’s capital adequacy to remain very strong, redundant, and supportive of the rating.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Caribbean Alliance Insurance Company Limited (CAIC), which is based in Antigua and Barbuda. The outlook for both ratings is stable. The ratings reflect CAIC’s “continued strong capitalization, historically favorable operating results and conservative underwriting philosophy,” Best explained. “CAIC’s favorable underwriting performance and investment income has produced positive overall results, which have consistently contributed to surplus appreciation. Additionally, the management team of CAIC has extensive knowledge of the islands in which the company operates and maintains effective risk management.” As offsetting factors, Best noted “CAIC’s geographic concentration of risk, high dependence on reinsurance and the challenging market conditions in the Caribbean marketplace. The company operates in competitive markets where local and large outside insurers continue to challenge established companies to maintain market share. CAIC also is exposed to both frequent and severe weather-related events affecting the Eastern Caribbean. However, the level of catastrophe risk is mitigated by CAIC’s conservative reinsurance program, which protects the company by reducing the net probable maximum loss to a manageable level.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of the Dominican Republic’s La Colonial, S.A. Compania de Seguros, both with stable outlooks. The ratings reflect La Colonial’s “profitable operating results and more than adequate capitalization,” said Best. “La Colonial’s consistent levels of positive investment income have resulted in historically favorable earnings that have enabled the company to continue to strengthen its risk-adjusted capitalization. La Colonial has maintained its stable operating performance through careful risk selection, particularly in its life book of business. La Colonial’s financial strength is enhanced by its level of reserves, comprehensive reinsurance program and strong liquidity and solvency metrics.” As partial offsetting factors, Best cited La Colonial’s “limited financial flexibility, the concentration of its business exclusively in the Dominican Republic and losses stemming from its property/casualty book of business. This business concentration makes the company vulnerable to regulatory, economic and political influence and volatility. Moreover, La Colonial will remain challenged to increase its market share while generating consistent earnings in a very competitive and maturing market. Also, the frequency of catastrophic events in the Caribbean presents a substantial level of risk exposure to La Colonial as it formalizes its risk management program.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bahamas-based RoyalStar Assurance Limited (RSA), both with stable outlooks. The ratings reflect RSA’s “solid capitalization, favorable operating performance and established presence within the Caribbean market,” Best explained. “RSA continues to produce positive operating results, which are derived from the company’s strong underwriting performance in conjunction with a steady stream of investment income. Since RSA writes all of its business in the Caribbean, it is exposed to frequent and severe weather-related events. Although this makes RSA somewhat dependent on reinsurance as part of its overall risk management program, the company’s solid reinsurance program reduces its net probable maximum loss to a manageable level.” As partial offsetting factors, Best noted the company’s “geographic concentration, dependency on reinsurance, continued exposure to weather-related catastrophe events and an increasingly competitive pricing environment. Local regulatory risk is somewhat elevated as the Bahamanian government increases its supervision over insurance companies operating in the country and seeks to tighten regulatory requirements. Furthermore, the Caribbean insurance market has become increasingly competitive as indigenous and outside insurers seek to gain market share in the region.”

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