Ratings Recap: Saturn, CCR, Arch (Pref. Shares)

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Vermont-based Saturn Insurance Inc., and has assigned a stable outlook to both ratings. Saturn is a captive of the UK-based BP P.L.C. (BP), an integrated global oil and gas company. The ratings of Saturn “reflect its strong risk-adjusted capitalization underpinned by excellent group reinsurance support provided by its sister company, Jupiter Insurance Limited,” which, Best said, “carries a financial strength rating of ‘A’ (Excellent). Saturn also benefits from low investment risk as it maintains half of its investments in cash or short-term deposits and the other half in loans back to BP with excellent liquidity conditions.” In addition Best noted that the “ratings also reflect BP’s strength and commitment to Saturn. Saturn was formed in 2011 with the view to retain environmental liability policies in the United States and to serve as a vehicle to transfer workers’ compensation business currently retained by BP America Inc. Additional lines of business are not expected to be written soon; however, these may be considered in due course. Best pointed out that there is currently “some uncertainty with regards to the timing of the transfer of the loss portfolio of workers’ compensation business;” however, Best said it expects it to be at the latest in 2013. Upward rating movements for Saturn “could occur if total reinsurance support is provided by Jupiter. Negative rating actions could occur if there were a significant deterioration in Saturn’s risk-adjusted capitalization linked to no evidence of parental support. In addition, a significant deterioration in BP’s financial position would likely lead to a review of Saturn’s ratings.”

A.M. Best Europe – Rating Services Limited has removed from under review with negative implications and affirmed the financial strength rating of ‘A++’ (Superior) and the issuer credit rating of “aa+” of France’s Caisse Centrale de Reassurance (CCR), and has assigned a negative outlook to both ratings. Best said the rating actions reflect its view that “some stability has been reached across the euro zone due to recent developments and policy actions. Nevertheless, underlying concerns remain with regards to the weak economic conditions and fiscal imbalances that still exist in the area.” Best added that it considers “CCR’s ratings fundamentals remain sound with only a marginal investment exposure to European peripheral countries and expects the company’s risk-adjusted capitalization to stay at an excellent level in the next few years.” However, Best also pointed out that “CCR’s ratings factor in the explicit unlimited guarantee provided by the Republic of France to its state-backed business. The negative outlook reflects the continued pressures on the creditworthiness of the Republic of France that ultimately could impact CCR via the guarantee provided.” Best added that, although it “expects CCR’s 2011 performance to be negatively impacted by the Thai floods and New Zealand earthquake, the company’s risk-adjusted capitalization is expected to remain very strong, while its operating performance is expected to remain sound given its balanced portfolio.” In Best’s opinion, “despite the high volatility of natural catastrophe and other lines of business written by CCR the impact of a catastrophic event on CCR’s balance sheet can be effectively absorbed by its equalization and other special reserves, and should the latter prove insufficient, by the unlimited state guarantee. Upward rating pressures are unlikely at this point.
Negative rating actions could occur if the level of explicit support given to CCR by the French state or the creditworthiness of the Republic of France were to change.”

A.M. Best Co. has assigned a debt rating of “bbb” to the $325 million 6.75 percent Series C preferred shares of Bermuda-based Arch Capital Group Ltd. with a stable outlook. The proceeds from the issuance will be used by Arch to redeem its Series A and B preferred securities. Best said the “issuance would not represent a material impact on the organization’s overall capital structure and have no impact on the company’s existing financial strength ratings.”

Topics Europe