Ratings Roundup: Topiary (Cat Bonds), Cardif, AMI, PhilNaRe

March 25, 2011

Standard & Poor’s Ratings Services said that its ‘BB+(sf)’ rating on Topiary Capital Ltd.’s Series 2008-1 notes will remain on CreditWatch, where it was placed on March 18, 2011, with negative implications. S&P explained that the “calculation agent, RMS, is in the process of determining whether or not the March 11, 2011, earthquake in Japan is an activation event. If it is, the noteholders will be at risk for losses of principal and interest for subsequent covered events that occur from March 11 through July 31. Accordingly, we have determined that if the earthquake is an activation event, we will lower the rating on the notes to ‘CCC+(sf)’ and remove it from Creditwatch. On March 18, we had indicated that the rating could fall as low as ‘CCC(sf)’. Alternately, if RMS determines that the March 11 quake is not an activation event, we will remove the rating from CreditWatch and affirm it at ‘BB+(sf)’.” S&P said it is waiting for “updated information from RMS.” When it has been received the rating agency said it would “take the appropriate rating action. We do not expect to receive a final determination until April 25, 2011.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit rating (ICR) of “aa” of France’s Cardif Assurance Vie and Cardif Assurances Risques Divers. Best has also affirmed the FSR of ‘A+’ (Superior) and downgraded the ICR to “aa-“from “aa” of Netherlands-based Cardif Levensverzekeringen N.V. and Cardif Schadeverzekeringen N.V., and has downgraded the FSR to ‘A-‘ (Excellent) from ‘A+’ (Superior) and ICR to “a-” from “aa-” of the UK-based Pinnacle Insurance plc. All of these companies are subsidiaries of France’s BNP Paribas Assurance S.A. In addition Best said it has affirmed the ICR of “a+” of BNP Paribas Assurance S.A., but it has revised its outlook on the ratings of Pinnacle Insurance to negative from stable; the outlook for all other ratings remains stable. Best then stated that it has withdrawn the ratings at the companies’ request and assigned a category NR-4 (Company Request) to the FSR and an “nr” to the ICR. Best noted that the ratings “factor the implicit capital support of BNP Paribas SA, which wholly owns BNP Paribas Assurance S.A. The ratings of BNP Paribas Assurance S.A. and its French subsidiaries, Cardif Assurance Vie and Cardif Assurances Risques Divers, reflect their strong business profile, resilient business model and continuing strong risk-adjusted capitalization.” Best explained that the downgrades of the Dutch and English subsidiaries, Cardif Levensverzekeringen N.V., Cardif Schadeverzekeringen N.V. and Pinnacle Insurance plc, respectively, “reflect their significant reduction in business profile in the Netherlands and in the United Kingdom, directly suffering from the effect of the economic crisis and the tightening of the lending conditions that put significant pressure on the volume of premiums written.” Best added that the negative outlook for Pinnacle Insurance plc is “driven by the uncertain effects on its market position and profitability of its decision to stop writing savings business, which used to be its technically profitable line, whilst payment protection insurance, which now constitutes the bulk of its business, remains under scrutiny by the English regulator.”

A.M. Best Co. has downgraded the financial strength rating to ‘A-‘ (Excellent) from ‘A+’ (Superior) and issuer credit rating to “a-” from “aa-” of New Zealand’s AMI Insurance Limited, and has placed both ratings under review with negative implications. Best said the downgrades reflect its view of the “negative impact on AMI’s capitalization, due to the latest loss development from the recent Canterbury earthquake in February 2011.” Best also said it is “concerned with AMI’s risk management in relation to its aggregate catastrophe exposures.” Best noted that it understands that “capital raising initiatives are being pursued by AMI’s management. As a result Best has “put the ratings under review with negative implications while discussions continue with management regarding back-up capital plans.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of National Reinsurance Corporation of the Philippines (PhilNaRe), both with stable outlook. Best said the ratings reflect PhilNaRe’s “adequate capitalization, established market presence in the Philippines and conservative investment portfolio. PhilNaRe’s risk-adjusted capitalization, as demonstrated by Best’s Capital Adequacy Ratio (BCAR), remained strong in 2009 and is expected to be adequate to support the company’s future premium growth in the next three years, regardless of the expected drop of the BCAR.” Best added that as “the only domestic reinsurance company in the Philippines and considering its long history, PhilNaRe has established a good presence in the Filipino market. PhilNaRe has a conservative investment portfolio, which has enabled the company to generate a stable investment income over the past five years. Positive investment incomes were influential in offsetting the underwriting losses over the past five years, except in 2007.” As offsetting factors, Best cited the “deteriorating trend of the combined ratio and high catastrophe exposure in the Philippines. The unfavorable development of the combined ratio since 2008 arises from the instability of both the loss and expense ratios. The volatility of the loss ratio is attributed to several individual fire and marine claims and catastrophe-related losses. The loss ratio is expected to deteriorate in 2010 partly due to late claims reporting from the cedants. The expense ratio was in an upward trend in 2009, with the increase of the commission paid and the surge of the provision for impairment losses from cedants. The latter has been significantly reduced in the third quarter of 2010.” In addition best indicated that “underwriting performance is expected to remain poor in 2010. To overcome this unfavorable underwriting result, PhilNaRe continues to tighten its underwriting guidelines in its property business. Although the company’s current risk-adjusted capitalization is adequate, continuing unsatisfactory underwriting performance and excess dividend payout will create pressure on the capitalization level, and thus, on the stability of the ratings.”

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