Ratings Roundup: PMG (Sony), National Grid, Tapiola

February 24, 2012

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of” A’ (Excellent) and issuer credit rating of “a” of Bermuda-based PMG Assurance Ltd. Best said the ratings “reflect PMG’s excellent capitalization, its historically strong operating performance and strategic position as the captive insurance company for the Sony Corporation.” However, Best noted that these strengths are “partially offset by PMG’s exposure to potentially large natural catastrophe losses.” Best explained that the revised outlook “reflects PMG’s exposure to the recent losses experienced by Sony as it faces stiff competition in some key product lines, which has resulted in Sony’s ratings being downgraded by other credit rating agencies, and potential further movement based on concerns about Sony’s overall direction. PMG’s role is to meet certain global insurance requirements of Sony’s members. PMG’s strengths are derived from its underwriting focus, long-standing customer relationships and conservative operating strategy, and its results have varied in recent years. While it has benefited from rate increases, the company experienced several catastrophe-related incidents in 2011 that had a significant impact on its capitalization.” However, Best pointed out that “PMG was able to withstand this adverse claim experience at the current rating level, and management has ensured Best of Sony’s commitment to maintain prudent capital levels. PMG could experience negative rating movement if capital levels do not continue to support its rating level and if Sony’s risk profile continues to deteriorate materially. Positive rating movement is possible if Sony’s overall risk profile improves in the near term.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of National Grid Insurance Company (Isle of Man) Limited (NGIC), both with stable outlooks. The ratings of NGIC reflect its “strong risk-adjusted capitalization and comprehensive reinsurance program,” said Best. In addition the ratings take into consideration NGIC’s “strong integration within the parent’s, National Grid Plc (NG Plc), risk management structure. An offsetting rating factor for NGIC is its historic volatile underwriting performance.” Best said it “expects NGIC’s business mix to remain largely unchanged. It is expected that the volume of premiums written will increase again in 2012/2013 in line with inflation.” Best also said it “anticipates that NGIC’s risk-adjusted capitalization is likely to remain very strong over the next two years. NGIC is likely to continue to release a significant proportion of its reserves for outstanding claims in the next two years as claims are closed or conservative reserves are reduced and hence will reduce risk-adjusted requirements.” Best considers NGIC’s reinsurance program “as comprehensive and adequate,” and it also believes that there “is a certain degree of volatility within the company’s portfolio due to the nature of the risks insured by NGIC. However, a recent increase in premium rates is expected to alleviate the impact of high frequency claims on the company’s performance. For the year ending March 2012 and going forward, NGIC is expected to produce good underwriting results. Upward rating movements are unlikely in the next two years. Negative rating actions could occur if there were a significant deterioration in NGIC’s risk-adjusted capitalization linked to no evidence of support from NG Plc to boost capitalization. In addition, a significant deterioration in NG Plc’s financial position would likely lead to a review of NGIC’s ratings.”

A.M. Best Europe – Rating Services Limited has placed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Finland’s Tapiola General Mutual Insurance Company under review with developing implications following the company’s announcement on February 7, 2012 to merge with Local Insurance Mutual Insurance Company. The merger is subject to the approval of the Finnish Competition Authority and the Finnish Financial Supervisory Authority, as well as obtaining approval at the respective Annual General Meetings. It is expected to take approximately two years to complete. Best noted that “Local Insurance is part of Local Insurance Group, which comprises 51 insurance associations, an insurance cooperative, as well as a regional insurance mutual company. The insurance associations are independent, mutual enterprises owned by their policyholders. The group is a market leader in farm insurance and underwrites predominantly retail lines of business within Finland. The company also acts as a reinsurer for the insurance associations, and its direct business portfolio includes mainly motor vehicle liability insurance and statutory accident insurance. It is likely that some economies of scale will be achieved as a result of the merger, whilst simultaneously increasing Tapiola General’s distribution channels across Finland. The ratings of Tapiola General will remain under review with developing implications until the full impact of the merger can be assessed. Given the planned merger, positive and negative rating actions are unlikely in the near term.”

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