Ratings Recap: Tokio Millennium Re, Alterra Re Europe, Harmony General

November 7, 2011

A.M. Best Co. has upgraded the financial strength rating to ‘A++’ (Superior) from ‘A+’ (Superior) and the issuer credit rating to “aa+” from “aa-” of Bermuda-based Tokio Millennium Re Ltd. (TMR), both with stable outlooks. TMR is a wholly owned subsidiary of Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF), which is the main trading subsidiary of Tokio Marine Holdings, Inc. Both companies are domiciled in Tokyo, Japan. Best explained that “TMR remains strategically important to Tokio Marine Group’s initiatives to geographically diversify its aggregation of natural perils, help enhance its enterprise risk management and ultimately establish a diversified portfolio that provides earnings stability. Over the past year, Tokio Marine Group has taken steps to unify its global reinsurance brand under TMR.” Best also indicated that “TMR benefits from the global recognition and balance sheet strength of TMNF. TMR predominately writes property catastrophe and specialty reinsurance and is expanding into casualty reinsurance. In addition, TMR is a leader in transforming and transferring reinsurance risks to the capital markets.” Best added that the “ratings reflect TMR’s superior financial strength, favorable operating performance over the last several years and its prudent risk management practices. In addition, the ratings are enhanced by the implicit and explicit support provided by TMNF. The ratings also consider TMR’s role within the Tokio Marine Group and its strategic importance to the organization, which has become more evident given the branding initiative and structural realignment that was approved by Tokio Marine Group in the second half of 2010. TMR has a scientific and quantitative focus and looks to take on risk that it can identify with and model with a high degree of comfort. Property catastrophe modeling is done utilizing commercially available models in order to obtain a market view, and in addition, TMR has developed and utilizes a proprietary model to form its own view of property catastrophe risk. This allows the company to be more selective or competitive as management sees appropriate. Furthermore, TMR maintains a conservative investment portfolio, in part, to position itself for strong risk taking capacity from an underwriting perspective.” As a partial offsetting factor, Best cited “TMR’s exposure to low frequency, high severity catastrophic events, as evidenced by the New Zealand earthquake in February 2011. The losses from the New Zealand earthquake have significantly impacted TMR’s financial performance for this year; however, the company remains well capitalized and well positioned to take advantage of improving property catastrophe rates in the global market place.”

A.M. Best Co. has withdrawn the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Alterra Reinsurance Europe plc, which is based in Ireland, as the company has been merged out of existence. Previously, Alterra Capital Holdings Limited announced that Alterra Re Europe had been merged into Alterra Europe plc. Best noted that Alterra Europe plc “will underwrite both insurance and reinsurance business on a single platform, which will allow for greater operational efficiency, among other favorable attributes. Alterra and its other operating subsidiaries’ ratings are unaffected by this merger.”

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Barbados-based Harmony General Insurance Company Ltd., both with stable outlooks. The ratings reflect Harmony’s “solid risk-adjusted capitalization, overall earnings in recent years and conservative reinsurance program,” said Best. Harmony is owned by ABH Holdings Ltd., a privately owned, Barbados-domiciled holding company. “Harmony has reported overall earnings in recent years, which has enabled the company to enhance its capitalization through retention of earnings,” Best noted. “Harmony continues to maintain more than adequate risk-adjusted capitalization for its current business profile. Although the company operates in a region that has historically been less prone to catastrophic events, Harmony maintains a very conservative reinsurance program to limit its exposure to natural disasters.” As partial offsetting factors, Best cited “the geographic concentration of Harmony’s business in an increasingly competitive domestic market, its reliance on reinsurance as a catastrophe risk mitigation strategy and the company’s limited financial flexibility as a result of its private ownership structure.”

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