Ratings Recap: HSB (UK), Nissan Global Re, Optima, Hatherley/Park

October 13, 2011

A.M. Best Europe – Rating Services Limited has upgraded the financial strength rating to ‘A++’ (Superior) from ‘A+’ (Superior) and the issuer credit rating to “aa+” from “aa-” of UK-based HSB Engineering Insurance Limited (HSBEIL), both with stable outlooks. The rating upgrades “reflect HSBEIL’s strategic importance to its parent, The Hartford Steam Boiler Inspection and Insurance Company (HSB), as the HSB group’s principal source of geographical diversification,” Best explained. “In addition, HSBEIL is expected to maintain excellent consolidated risk-adjusted capitalization in 2011.” Best said it “anticipates a continued strong performance from HSBEIL in 2011, with both underwriting and investment income making positive contributions to the company’s results. HSBEIL has a strong track record of underwriting profitability, in particular due to low loss ratios, which are supported by its extensive engineering expertise. In 2010, HSBEIL reported a pre-tax profit of £25 million [$39.4 million] and a combined ratio of 79 percent. HSBEIL has a strong specialist business profile in the U.K. and Canadian engineering insurance sectors. The company benefits from its ownership of inspection and consultancy service provider, HSB Engineering Insurance Services, which plays an active role in HSBEIL’s pre-underwriting and post-loss event claims management.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based Nissan Global Reinsurance, Ltd. (NGRe), both with stable outlooks. The ratings reflect NGRe’s “strong capitalization and conservative operating strategy,” said Best. The ratings also consider the company’s “critical role and favorable profile” as part of the Nissan Motor Co. Ltd., as well as its “excellent operating performance, since its inception in 2005.” As partial offsetting factors best cited “the significant exposures NGRe has to product liability, property and marine cargo claims. Additionally, the recent deterioration in the financial markets and the decline in the profitability of automakers has had some impact on premium volumes; although, investment results have not been significantly affected. Furthermore, NGRe is expecting a reversal of those trends in the current year.” Best pointed out that NGRe is a “single parent captive of Nissan, the seventh-largest automaker in the world and third-largest in Japan. NGRe operates two distinctive lines of business: (1) global property/casualty programs for Nissan, which include global property (United States, Japan, Europe, Mexico and South Africa), U.S. workers’ compensation, U.S. and Japan product liability and marine transport, and (2) global platform for extended service contract business.” In addition Best noted that NGRe “benefits from the group’s extensive risk management and loss control programs. The captive operates at conservative underwriting leverage levels; however, it provides coverages with large limits, as such its gross exposures per loss occurrence are therefore elevated.” Best concluded that, nevertheless, it “recognizes the quality of the substantial financial resources and support available to the captive.”

A.M. Best Co. has assigned a financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” to Optima Insurance Company, which is based in San Juan, Puerto Rico, both with stable outlooks. The ratings reflect Optima’s “strong risk-adjusted capitalization due to capital contributions, profitable operating earnings reflective of its increasing levels of investment income, a supportive reinsurance structure and experienced management team,” Best explained. The ratings also reflect the “benefits afforded by the company’s affiliated insurance agency, which provides access to profitable business with demonstrated loss experience that should support profitable growth.” As partial offsetting factors Best noted Optima’s “relative lack of operational scale, geographic risk concentration (as all business is written within Puerto Rico), which exposes results to the potential for weather related losses and a heavy reliance on reinsurance.” Best added that while “the company’s underwriting expense ratio remains elevated relative to the industry composite, which is reflective of commission expenses, the measure compares favorably with local market peers.” The stable outlook recognizes Optima’s strong capital position, as well as Best’s “expectation that overall capitalization will remain supportive of the ratings, which is based on the company’s projections for solid operating earnings over the near term given its conservative operating philosophy.”

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Bermuda-based Hatherley Insurance Ltd. due to its business being transferred into Park Assurance Company of Burlington, Vermont. Best also affirmed the FSR of ‘A ‘(Excellent) and ICR of “a” of Park. The outlook for both ratings is stable. Hatherley’s book of business consists of mainly liability coverages, including high deductible reimbursement policies issued to the global financial services group JPMorgan Chase & Co., which covers workers’ compensation, auto liability and general liability. “These have been novated and transferred to Park,” Best said. “Hatherley has applied to the Bermuda Monetary Authority (BMA) to surrender its license, and the BMA has issued an order cancelling Hatherley’s registration.” Best said its ratings of Park reflect its “strong balance sheet, excellent liquidity and conservative operating strategy. The ratings also recognize the company’s favorable operating results and its role as a single parent captive of JPMorgan Chase.” As partial offsetting factors Best cited Park’s “large gross underwriting exposures as it offers very high insurance limits and insures some properties with substantial insured values.” Best also noted that Park is “very dependent on reinsurance in order to offer its various property programs and high limits. Park provides JPMorgan Chase with global property coverages, including coverages against terrorism losses and going forward, high deductible reimbursement policies covering workers’ compensation, auto liability and general liability. Therefore, it is a key component of JPMorgan Chase’s risk management strategy and benefits from the group’s significant financial resources. Park also benefits from the group’s extensive risk mitigation and safety programs. As the company cedes most of its global property program, its exposure to underwriting losses is minimal, barring significant losses from terrorism. Park uses only highly rated reinsurers, and its surplus base is more than adequate to support its asset and credit risk exposures.” However, Best added, “the company offers very high limits, its resulting gross underwriting exposures on its largest properties also are very high. Park’s dependence on reinsurance is therefore substantial, creating considerable credit risk in the event of exceptionally large losses. In addition, the company is dependent on the protection afforded by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). While the TRIPRA program offers significant protection from terrorism losses, the net impact on Park could still be burdensome considering the high coverage limits offered.” Nevertheless, Best said it “recognizes the low probability of such extreme events and the support available to the company as part of JPMorgan Chase.”

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