Ratings Recap: Trinidad & Tobago, Newport Bonding, Petrovietnam

November 3, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Trinidad & Tobago Insurance Limited (TATIL), both with stable outlooks. The ratings reflect TATIL’s “historically profitable operating performance, solid capitalization and the support the company receives from its ultimate parent, ANSA McAL Limited (AMCL), “best explained. AMCL is one of the largest diversified companies in the Caribbean and is publicly-traded on the Trinidad & Tobago Stock Exchange. Best added that “TATIL’s prudent underwriting philosophy and conservative risk management strategies historically have resulted in favorable underwriting results. This has enabled the company to record consistent overall earnings in recent years, while enhancing its risk-adjusted capitalization. As an important strategic focus within AMCL’s financial services segment, TATIL has the support and commitment of AMCL and benefits from group synergies, along with access to AMCL’s considerable resources, including information technology, financial and investment management services.” As partial offsetting factors, Best cited “the geographic concentration of TATIL’s operation, the challenges to maintain overall earnings and market share in extremely competitive markets and the potential impact from exposure to catastrophic events.”

A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of ‘C++’ (Marginal) and issuer credit rating of “b” of Puerto Rico- based Newport Bonding and Surety Company; however, the outlook assigned to both ratings is negative. The ratings reflect Newport’s “weak overall capitalization, which is reflective of the company’s poor operating performance over the long term, combined with the impact of unrealized capital losses and stockholder dividends that collectively reduced policyholder surplus during the most recent five-year period,” said Best. Additionally, “a number of accounting adjustments related to the restatement of certain balance sheet items from the company’s 2007 annual statement served to significantly impact surplus in recent years. These adjustments were then carried through to the 2009 annual statement, which was required to be restated by the Commissioner of Insurance of the Commonwealth of Puerto Rico, without consideration for the passage of time.” As a result the Company experienced a “significant surplus reduction based on the re-filed 2009 statement. Following the resolution of these adjustments, the company’s surplus position materially improved by year-end 2010. In addition, Newport stockholders’ infused additional capital prior to year-end 2010 to recapitalize the company.” Best said that despite these initiatives, its negative outlook reflects its “concern that it may take some time for recent management initiatives intended to improve results to take hold; thus, Newport may report a poor operating performance over the near term. As a result, the company’s relatively weak risk-based level of capitalization may be at risk for further deterioration.”

A.M. Best Co. has withdrawn the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Vietnam’s Petrovietnam Insurance Joint Stock Corp (PVI JSC, currently known as PVI Holdings) due to its restructuring from a non-life operating entity to a holding company in June 2011. Best has assigned a financial strength rating of ‘B+’ (Good) and an issuer credit rating of “bbb-” to PVI Insurance Co. (PVI Insurance), and has assigned them a stable outlook. Best noted that “effective June 28, 2011, PVI JSC has been renamed PVI Holdings and the corporate structure has been changed to a holding company from a non-life operating entity. Under the restructuring, PVI Holdings has direct interest in a non-life insurer (PVI Insurance), a reinsurer (PVI Reinsurance – PVI Re), a hospital (PVI Hospital JSC), an investment company (PVI Investment and Development JSC) and a media company (PVI Media). A life operating entity and a fund management company are to be established in 2012 under the plan. Both PVI Insurance and PVI Re started operating August 1, 2011, and are wholly owned by PVI Holdings. A large portion of the capital and investment activities of PVI JSC has been maintained within the holding, while the capitalization of PVI Insurance has weakened. It is expected that PVI Re’s primary revenue at this early stage will be derived from its administrative support to PVI Insurance for the reinsurance inward business and the placement of the reinsurance agreements. The major revenue contributor to PVI Holdings will be PVI Insurance.” Best added that the “ratings of PVI Insurance reflect the planned financial support from its immediate parent company, expected improvement and adequate risk-based capitalization, expected technical supports from the strategic partner of PVI Holdings, historical excellent operating performance and strong market position in the Vietnamese non-life market. HDI-Gerling Industrie Versicherung AG (HDI-Gerling) entered into an agreement with PVI Holdings in August 2011 to acquire new shares issued by the latter for a total amount of VND 1,916.5 billion. With the Vietnamese regulatory approval in October 2011, HDI-Gerling became the strategic partner of PVI Holdings with 25 percent shareholding. HDI-Gerling is expected to provide technical support, such as transfer of know-how (to non-life and life entities) and reinsurance capacity, to PVI Holdings’ affiliates. Part of the capital raised (VND 700 billion) is to be infused to PVI Insurance by year-end 2011 to strengthen the company’s risk-based capitalization and to support the ongoing business expansion. After this capital injection, combined with reduced risk retention in 2012, PVI Insurance’s risk-based capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is expected to be adequate to support its overall risk profile. PVI JSC recorded excellent underwriting results in the past five years, with an average combined ratio of 83 percent in 2006-10.” Best said it “expects PVI will be able to maintain a favorable underwriting performance and its leading market position in terms of direct premium written in its core marketplace. Partially offsetting these positive rating factors are the high country risk and high expense ratio. PVI JSC’s expense ratio was relatively high as compared with its Asian peer standing at 45.8 percent in 2010 due to high inflationary pressure in Vietnam.”

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