Ratings Recap: National General, Univé Her/Stormher, Radius

May 4, 2012

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating of “bbb+” of the United Arab Emirates National General Insurance Company (P.S.C.) (NGI), both with stable outlooks. Best noted that both ratings “continue to be supported by NGI’s very strong risk-adjusted capitalization, long track record of generating sound technical profits and its established domestic franchise.” However, the report also noted that the ratings take into account “the company’s investment strategy, which is considered to be a source of potential volatility in earnings. NGI is a well-established composite insurer, ranking as the seventh-largest by gross written premiums in 2011.” Best said it expects NGI to be able “to protect its domestic position going forward, growing its top line through increased cooperation with its largest shareholder.” In Best’s opinion, NGI’s “risk-adjusted capitalization is very strong with sufficient room to absorb planned growth over the next two years. The company has demonstrated good ability to generate capital internally, with a long track record of generating sound returns, supported by consistently good underwriting performances.” However, Best also noted that “NGI’s investment portfolio—of which real estate, equities and unquoted investments accounted for 72 percent at year-end 2011—generates volatility in investment income.” As a result Best indicated that “NGI’s ratings are likely to come under negative pressure should the company fail to halt the technical losses in its medical business. Negative pressure also may result should the company’s trend in increased risk and lower liquidity of investments persist. Any upward movement in NGI’s ratings is likely to result from an improvement in its business profile in its domestic market or better diversification of its investment portfolio.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit ratings of “a-” of Onderlinge Verzekerings Maatschappij Univé Her u.a. (Univé Her) and Onderlinge Verzekerings Maatschappij Univé Stormher u.a. (Univé Stormher). Both companies are domiciled in the Netherlands. The outlook for all of the ratings remains stable. The ratings “reflect each company’s excellent risk-adjusted capitalization, good operating performance and good business profile as a specialist insurer within its domestic market,” said Best. However, Best also pointed out that both Univé Her and Univé Stormher “are small in absolute terms and have a client base that is restricted to the 22 Dutch mutual property insurers that own and govern the two companies. As a consequence, geographical and business line diversification is limited. Risk-adjusted capitalization is expected to remain strong for both companies. Univé Her’s risk-adjusted capitalization continues to be enhanced by its members’ account, the reported value of which is expected to be around €14.0 million [$18.4 million] at year-end 2011.” Best explained that the members’ account “acts similarly to a subordinated debt and can be used if the company experiences financial difficulties. In addition to having access to the members’ account, Univé Stormher is expected to report a catastrophe reserve of € 22.4 million [$29.5 million] at year-end 2011, which can be utilized if the company experiences large catastrophe losses. Univé Her is expected to report a small underwriting loss of approximately €700,000 [$920,000] in 2011, as a result of several medium-sized claims. Univé Stormher experienced one claim in 2011 and as a result, overall reported earnings for the company are expected to significantly improve in 2011, with an expected loss ratio in the region of 15 percent (2010: 106.5 percent). Given Univé Stormher’s exposure to catastrophes, technical results are volatile.” However, Best also noted that the “company has an extensive reinsurance program in place with cover up to a one in 200 year event. Univé Her and Univé Stormher maintain their specialist business profiles as the sole property reinsurers for the 22 Univé property mutuals, which own and govern the two companies. Although the client base is limited, the customers are loyal, and neither Univé Her nor Univé Stormher has ever failed to renew an account (with the exception of mergers between mutuals). Both companies possess extensive knowledge of their customers’ business and are able to provide underwriting and claims support as well as competitive prices. In 2012, Univé Her and Univé Stormher are expected to be merged into a limited company, which will be 100 percent owned by Coöperatie Univé U.A. (a mutual holding company with the Univé insureds as members). The merger and restructuring are still subject to final regulatory approval, and completion is expected by the end of June 2012. The merged company will be active retrospectively from 1 January 2012. The members’ account will be repatriated back to the mutual insureds, nevertheless, risk-adjusted capitalization at the new company is expected to remain strong. Upward rating movements at this point are unlikely. Downward rating movements may be triggered if there is a significant reduction in risk-adjusted capitalization as a result of a large catastrophe and/or changes to either company’s client base.”

A.M. Best Co. has assigned a financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” to Cayman Islands-based Radius Insurance Co., Ltd., both with stable outlooks. The ratings of Radius “are based on its excellent capitalization, a history of profitable business written from a predecessor captive, as well as the position the company holds as the captive insurer for its ultimate parent, Phillips 66,” best explained. “Phillips 66 became a publicly traded company under the ticker symbol, NYSE: PSX, and is the result of ConocoPhillips spinning off the downstream portion of its business to the public. The ratings also consider the level of commitment on the part of its parent, whose management incorporates Radius as a core element in its overall risk management program.” As partial offsetting factors Best cited “Radius’ exposure to large losses due to the limits offered on its policies as well as its significant dependence on reinsurance protection. The business that will be written by Radius has a history of strong underwriting results and operating returns. The company’s loss experience has remained favorable due in part to the strong loss control programs at the parent. Phillips 66 will conduct annual reviews of its potential loss exposures through a specialist in industrial risks. A single occurrence could result in a large loss that approaches Radius’s limits.” However, Best also indicated that the “company has the capital to fund claims in the event of a reinsurance recovery problem. Key rating triggers that could result in positive rating actions would be Radius generating consistent net income, limited losses and meeting and/or exceeding its business plan over the long term. Key rating triggers that could result in negative rating actions would be Radius generating consistent net losses, numerous large claims and/or not executing its business plan over the long term.”

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