Ratings Recap: Risk Re, Argus

March 4, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Cayman Islands-based Risk Reinsurance Limited (RRL), both with stable outlooks. The ratings reflect RRL’s “superior capitalization and balance sheet strength, profitable results and the strategic role it performs as a captive insurance company of Transpower New Zealand Limited, a state-owned enterprise of the Government of New Zealand,” Best explained. As partial offsetting factors Best noted that the “source of RRL’s business is limited to hazards with the potential for a substantial loss. The company cedes excess exposure layers to reinsurers with strong financial strength ratings. It does not insure any third party risks. RRL benefits from Transpower’s strict adherence to the New Zealand Regulatory Risk Management framework, enhanced by its own integration within Transpower’s risk structure.

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit ratings (ICR) to “bbb” from “a-” of Bermuda-based Argus Insurance Company Limited, Somers Isles Insurance Company Limited and Bermuda Life Insurance Company Limited, all subsidiaries of Argus Group Holdings Limited. Best also downgraded the ICR to “bb” from “bbb-“of the Argus Group, and has revised its outlook on all of the ratings to stable from negative. All companies are domiciled in Hamilton, Bermuda. Best explained that the rating downgrades of the Argus Group and its subsidiaries “reflect the significant decline in the capital positions of Bermuda Life and Argus Group over the last two years due to asset valuation write-downs mainly on Bermuda-based equity investments, and to a lesser degree, impairments of domestic commercial mortgages. The Bermuda domestic capital market continues to be pressured and significant appreciation of the value of Bermuda Life’s investment is not expected in the near term. Although the operating performance of Bermuda Life has improved, margins continued to be pressured due to the decline in investment income related to the low rate of return on both equity and fixed income invested assets. Additionally, Somers Isles’ operating margins are being pressured due to an increase in the medical loss ratio as a result of higher utilization and medical cost inflation. Within its property/casualty segment, Argus Insurance has recorded favorable underwriting and overall results in recent years and continues to maintain solid risk-adjusted capitalization. Offsetting rating factors include the Argus Group’s long standing participation in the domestic Bermuda insurance market, solid market share and improved operating results on both a consolidated and individual insurance company level.”

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