Ratings Recap: ACS (NZ) Ltd., Transmonde, Risk Re, Ansvar Australia

March 27, 2012

A.M. Best Co. has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and issuer credit rating to “bbb-” from “bbb” of New Zealand’s ACS (NZ) Limited, and has removed both ratings from under review with negative implications and assigned a negative outlook. Best said its “rating actions reflect ACS’ continued stressed risk-adjusted capitalization after it held significant discussions with its group parent,” UK-based Ecclesiastical Insurance Office plc and the direct parent, Australia-based Ansvar Insurance Limited, “following a series of earthquakes between September 2010 and June 2011. The ratings also consider ACS’ weakened business profile.” Best explained that following the discussions with ACS’ parent, “a short-term parental liquidity facility has been put into place to facilitate claims cash flows and timing of reinsurance recoveries; however, its significance is outweighed by the amount of reinsurance recoverables on ACS’ balance sheet. The pace at which the reinsurance recoverable balances can be reduced will be a major driver for the company’s risk-adjusted capitalization going forward.” In addition Best noted that as of December 31, 2011, “ACS ceased its insurance underwriting in New Zealand and is now focusing on claims management. Furthermore, the company’s name was changed from Ansvar Insurance Limited to ACS (NZ) Limited on February 1, 2012, to better reflect its primary business objective as a run-off claims management operation.” Best explained that these developments “significantly reduced ACS’ business profile. Without any underwriting income, capital could be eroded if ACS’ investment income does not offset run-off expenses such as claims administration expenses, write offs and legal costs.” On a more positive note, Best indicated that “these negative rating factors are the arrangements with reinsurers that ACS has in place to expedite claims cash flows and efforts by its parental management to seek cash settlements of claims, which could speed up the reduction of reinsurance recoverables. Factors that could result in negative rating actions include a drawn out reduction of ACS’ reinsurance recoverables and further erosion in its capital position.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of {{dq0}} of Bermuda-based Transmonde Services Insurance Company, Limited, both with stable outlooks. Best said the ratings of Transmonde {{dq1}} As partial offsetting factors Best cited Transmonde’s “relatively high retentions and concentration in liability lines with significant loss severity potential and its limited market profile as a single parent captive. Transmonde provides professional, general and pollution liability coverages to members of the International Association of Superintendents, which is a subsidiary of SGS SA, a publicly traded Swiss company.” Best also noted that “Transmonde has maintained very conservative underwriting leverage ratios as surplus has consistently grown to support its business volumes. The company has posted low loss and loss adjustment expense ratios, reflecting SGS SA’s effective risk management. Transmonde’s relatively high per occurrence retentions are mitigated by significant deductibles and conservative reserving practices. The ratings recognize the company’s balance sheet strength and conservative underwriting leverage measures as well as Transmonde’s role as the captive insurance company of SGS SA. Rating factors that could lead to Transmonde’s ratings being upgraded would be the continuation of long-term, consistently strong operating profitability and the maintaining of excellent risk-adjusted capital levels. The rating factors that could lead to a negative outlook or rating downgrades include unfavorable operating profitability trends, outsized investment losses and a significant decline in the company’s risk-adjusted capital that would not be supportive of its current rating level.”

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Cayman Islands-based Risk Reinsurance Limited (RRL), both with stable outlooks. The ratings reflect RRL’s “superior capitalization and balance sheet strength, profitable results, as well as the strategic role it performs as a captive insurance company for Transpower New Zealand Limited, a state-owned enterprise of the Government of New Zealand,” Best explained. The report also pointed out that “New Zealand has experienced extensive quake activity within the past 18 months, and RRL has exhibited excellent maintenance of adequate surplus levels. RRL cedes excess exposure layers to reinsurers with strong financial strength ratings, and it does not insure any third-party risks. All investment assets are placed in a conservative and highly liquid portfolio consisting of cash equivalents and bonds.” In addition Best said “RRL benefits from Transpower’s strict adherence to the New Zealand regulatory risk management framework, enhanced by its own integration within Transpower’s risk structure. Potential negative rating movement exists if RRL does not continue to be supported by Transpower with regard to its surplus levels.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of {{dq8}} of Ansvar Insurance Limited (Ansvar Australia), both with stable outlooks. The ratings reflect Ansvar Australia’s “adequate risk-adjusted capitalization and a lower anticipated underwriting risk,” Best said. “Ansvar Australia’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), remains adequate for its current ratings.” Best also noted that the company’s underwriting business “was impacted by a series of major weather events in its core Australian market during fiscal year 2011. Unaudited management accounts suggest that the negative impact on the company’s overall earnings and capital position was reduced by strong investment results and the company’s reinsurance program. In addition, Ansvar Australia has some solvency cushioning as its insurance liabilities are reserved at a higher than required level of sufficiency.” Best added that in the future it expects underwriting risks to decline. However, Best also indicated that “tighter underwriting and the company’s exit from unprofitable businesses lines is anticipated to slow down net premium growth, leading to lower net premium leverage.” As partial offsetting factors Best cited Ansvar Australia’s “lower near-term profitability going forward and higher asset risk. Higher reinsurance costs and lower exchange commission income are anticipated to be a drag on underwriting profitability in the company’s Australian market. This may increase Ansvar Australia’s reliance on investment income to ensure positive overall earnings and to protect its capital position. Asset risk on a company level increased in fiscal year 2011 as a result of an intercompany loan. Asset risk also increased as the company increased investments to lower rated higher yielding investment grade bonds. A significant improvement in the trend of Ansvar Australia’s risk-adjusted capitalization, driven by sustained underwriting profitability, could result in upward pressure to the company’s ratings. Factors that could result in negative rating pressure include continued negative overall earnings and capital erosion.”

Was this article valuable?

Here are more articles you may enjoy.