Ratings Recap: BNY Trade, XL [pref. shares]

October 20, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Bermuda-based BNY Trade Insurance, Ltd., both with stable outlooks. The ratings reflect BNY Trade’s “strong capitalization, consistently positive operating results, conservative operating strategy and robust enterprise risk management (ERM) framework as it follows its parent, The Bank of New York Mellon Corporation’s practices,” Best explained. The ratings also recognize BNY Trade’s “excellent business position, as it has close ties to and is a wholly owned subsidiary of BNY Mellon, a leading global financial services company.” As partial offsetting factors Best cited BNY Trade’s “limited market scope, product mix and dependence on third parties for processing, servicing and administration. An additional offsetting rating factor is BNY Trade’s large (gross) underwriting exposure as it offers high gross insurance limits and insures excess bankers’ professional liabilities with substantial insured values. BNY Trade provides comprehensive reinsurance/insurance coverages/products to BNY Mellon.” Best explained that the company’s reinsurance “is placed with the world’s significant providers, and it benefits from BNY Mellon’s significant financial resources, extensive risk mitigation and the safety programs implemented throughout the organization. As BNY Trade fully cedes assumed risk under primary bankers’ professional coverages and an all risk property policy to the commercial market, the company’s exposure to net underwriting losses is minimal. BNY Trade’s projected operating results indicate favorable returns, and its surplus base of over $95 million is more than adequate to support the company’s asset and credit risk exposure. While BNY Trade’s excess bankers’ professional program and the property coverages written offer significant insured values (considering the high coverage limits offered), the net impact could be burdensome.” Best concluded that it nevertheless “recognizes the low probability of such events.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Bermuda-based BNY Trade Insurance, Ltd., both with stable outlooks. The ratings reflect BNY Trade’s “strong capitalization, consistently positive operating results, conservative operating strategy and robust enterprise risk management (ERM) framework as it follows its parent, The Bank of New York Mellon Corporation’s practices,” Best explained. The ratings also recognize BNY Trade’s “excellent business position, as it has close ties to and is a wholly owned subsidiary of BNY Mellon, a leading global financial services company.” As partial offsetting factors Best cited BNY Trade’s “limited market scope, product mix and dependence on third parties for processing, servicing and administration. An additional offsetting rating factor is BNY Trade’s large (gross) underwriting exposure as it offers high gross insurance limits and insures excess bankers’ professional liabilities with substantial insured values. BNY Trade provides comprehensive reinsurance/insurance coverages/products to BNY Mellon.” Best explained that the company’s reinsurance “is placed with the world’s significant providers, and it benefits from BNY Mellon’s significant financial resources, extensive risk mitigation and the safety programs implemented throughout the organization. As BNY Trade fully cedes assumed risk under primary bankers’ professional coverages and an all risk property policy to the commercial market, the company’s exposure to net underwriting losses is minimal. BNY Trade’s projected operating results indicate favorable returns, and its surplus base of over $95 million is more than adequate to support the company’s asset and credit risk exposure. While BNY Trade’s excess bankers’ professional program and the property coverages written offer significant insured values (considering the high coverage limits offered), the net impact could be burdensome.” Best concluded that it nevertheless “recognizes the low probability of such events.”

A.M. Best Co. has assigned a debt rating of “bb+” to the $350 million Series D preference ordinary shares issued by XL Group Ltd., of the Cayman Islands. The assigned outlook is stable. The shares will pay dividends on a non-cumulative basis at a floating rate of three month LIBOR plus 3.12 percent. The funds received in connection with the issuance will be used to partially repay existing senior notes issued by UK-based XL Capital Finance (Europe) plc, maturing in January 2012, with the balance available for general corporate purposes. “XL Group Ltd.’s debt-to-adjusted capital ratio and rolling three-year fixed charge coverage remains comfortably within the range that is commensurate with the assigned rating,” Best concluded.

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