Best Affirms Flagstone Re Africa Ratings; Put Under Review-Negative

November 16, 2011

A.M. Best Europe – Rating Services Limited has placed under review with negative implications and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Flagstone Reinsurance Africa Limited (FReA), which is based in South Africa.

Best said the rating actions “complete the successful appeal by the company, following the preceding negative actions taken on the FSR and ICR, as a result of the recent announcement by Flagstone Reinsurance Holdings S.A. (Flagstone Re), the ultimate holding company of the Flagstone group, of its intention to divest its South African operation as part of its initiative to restructure the organization and refocus on its core operations.”

Best also noted that “since FReA was acquired in July 2008, parental support, by way of an explicit guarantee and a 75 percent quota share retrocession arrangement, has been the key factor supporting the ratings of FReA, despite the company’s weak business profile and lackluster operating performance. The company has failed to achieve sufficient scale to support underwriting profits.”

The rating affirmations for FReA “reflect the full support of Flagstone Reassurance Suisse S.A. In October 2011, Flagstone Suisse increased the level of retrocession protection afforded to FReA, through the provision of a 100 percent quota share arrangement, thereby assuming all of FReA’s obligations derived from contracts written from the beginning of July 2008,” Best explained. “The retrocession cover will assume liabilities associated with all in-force policies as well as those arising from prior-year loss development. A.M. Best believes that full support will be available to protect FReA’s policyholders until such a time when Flagstone Re finalizes its exit strategy.”

Best added that the under review status “reflects the uncertainty associated with the continued full support by Flagstone Suisse in the event FReA is sold, which is ultimately dependent on the terms of the sale agreement.”

Best also said it “expects to resolve the under review status of FReA’s ratings following completion of the organizational restructuring that will take place during the first quarter of 2012.”

Source: A.M. Best

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