Ratings Roundup: Ocaso, Mariah Re (Notes)

September 6, 2011

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of ‘aa-‘ of Spain’s Ocaso, S.A. Seguros y Reaseguros. The outlook for both ratings is stable. The ratings reflect Ocaso’s “superior risk-adjusted capitalization, excellent operating performance and strong business profile,” said Best. As a partial offsetting factor Best cited the insurer’s “risk exposure ensuing from the current economic and financial situation in Spain.” However, Best pointed out that Ocaso’s risk-based capitalization “remains superior, having benefited from significant profit retention over a number of years. Ocaso’s capitalization is further supported by the coverage of catastrophic events in Spain (reinsured with the governmental company ‘Consorcio de Compensacion de Seguros’) and by its prudent investment strategy, with investments mainly concentrated in cash and fixed income securities (both government and high quality corporates).” Best also noted that Ocaso’s “overall profitability is strong, driven by the limited underwriting risk and low volatility of its funeral expenses portfolio. Historically in the non-life business the combined ratio has been excellent staying below 90 percent.” In addition Best said it “believes that it will remain at a similar level in 2011. Total net profits amounted to €79.5 million ($114.5 million) in 2010 (€55 million [$77.2 million] in 2009). Ocaso continues to be one of the leading Spanish providers of funeral expenses, which is the company’s main line of business. In recent years, the Ocaso group has consolidated its strong market position in that segment, acquiring a number of relatively small funeral expenses portfolios from competitors exiting the market. In 2010, the funeral expenses business contributed approximately 43 percent to Ocaso’s gross written premiums (GWP), which increased to €820 million ($1.153 billion). On the other hand, Ocaso is endeavoring to diversify its insurance portfolio through enhanced cross-selling. Life business accounted for 14 percent of GWP in 2010, with life premiums increasing by 9.4 percent on a year-on-year basis, which also benefited from a better trend of lapses and surrenders than in recent years.” In addition Best noted that 98 percent of Ocaso’s business originates in Spain and the company is an almost pure national insurer. In Best’s opinion, “a natural consequence is that Ocaso is directly affected by the economic and financial situation in Spain. Should current conditions deteriorate, it is likely that the company’s business as well as the quality of its investments (which are primarily Spanish government bonds and corporate securities) would be negatively impacted.” Nevertheless, Best said it “believes that even under stressed conditions, Ocaso maintains an excellent level of risk-adjusted capitalization.

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of ‘aa-‘ of Spain’s Ocaso, S.A. Seguros y Reaseguros. The outlook for both ratings is stable. The ratings reflect Ocaso’s “superior risk-adjusted capitalization, excellent operating performance and strong business profile,” said Best. As a partial offsetting factor Best cited the insurer’s “risk exposure ensuing from the current economic and financial situation in Spain.” However, Best pointed out that Ocaso’s risk-based capitalization “remains superior, having benefited from significant profit retention over a number of years. Ocaso’s capitalization is further supported by the coverage of catastrophic events in Spain (reinsured with the governmental company ‘Consorcio de Compensacion de Seguros’) and by its prudent investment strategy, with investments mainly concentrated in cash and fixed income securities (both government and high quality corporates).” Best also noted that Ocaso’s “overall profitability is strong, driven by the limited underwriting risk and low volatility of its funeral expenses portfolio. Historically in the non-life business the combined ratio has been excellent staying below 90 percent.” In addition Best said it “believes that it will remain at a similar level in 2011. Total net profits amounted to €79.5 million ($114.5 million) in 2010 (€55 million [$77.2 million] in 2009). Ocaso continues to be one of the leading Spanish providers of funeral expenses, which is the company’s main line of business. In recent years, the Ocaso group has consolidated its strong market position in that segment, acquiring a number of relatively small funeral expenses portfolios from competitors exiting the market. In 2010, the funeral expenses business contributed approximately 43 percent to Ocaso’s gross written premiums (GWP), which increased to €820 million ($1.153 billion). On the other hand, Ocaso is endeavoring to diversify its insurance portfolio through enhanced cross-selling. Life business accounted for 14 percent of GWP in 2010, with life premiums increasing by 9.4 percent on a year-on-year basis, which also benefited from a better trend of lapses and surrenders than in recent years.” In addition Best noted that 98 percent of Ocaso’s business originates in Spain and the company is an almost pure national insurer. In Best’s opinion, “a natural consequence is that Ocaso is directly affected by the economic and financial situation in Spain. Should current conditions deteriorate, it is likely that the company’s business as well as the quality of its investments (which are primarily Spanish government bonds and corporate securities) would be negatively impacted.” Nevertheless, Best said it “believes that even under stressed conditions, Ocaso maintains an excellent level of risk-adjusted capitalization.

Standard & Poor’s Ratings Services has lowered its rating on Mariah Re Ltd.’s Series 2010-1 notes to ‘CCC+(sf)’ from ‘B(sf)’ and revised the CreditWatch status to developing. S&P had previously indicated that “any further rating action on the notes would depend on the occurrence and magnitude of subsequent covered events. Since then, we have received information for covered events through the end of July. Total covered losses through this period, which comprises events through Catastrophe Series Number 57, is $697.46 million.” S&P said the amount is “consistent with our expectation when we initially rated the notes ‘B(sf)’. Given the initial attachment level of $825 million, Mariah Re can incur an additional $127.54 million of covered losses before there is a reduction in the outstanding principal balance.” S&P is therefore “waiting for the results for Catastrophe Series Number 58 and updates from Property Claims Services on previously reported events,” which it expects to receive at the end of September. It will update the CreditWatch status of the rating shortly thereafter. Until then, the ratings are kept on “CreditWatch developing.”

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