Ratings Recap: China Taiping (NZ), Maiden Holdings (Shares)

August 30, 2012

A.M. Best Co. has downgraded has the financial strength rating (FSR) to ‘B+’ (Good) from ‘B++’ (Good) and the issuer credit rating to “bbb-” (Good) from “bbb” (Good) of China Taiping Insurance (NZ) Company Limited (CTPNZ). The outlook for both ratings is stable. Best said its rating actions “reflect CTPNZ’s declining capital trend and marginal regulatory capital level within the next 36 months. The company’s capital position is anticipated to decline steadily as run-off expenses will exceed investment income, and is anticipated to be marginally above the regulatory minimum by 2014. As a result, any run-off expense overruns could expose CTPNZ to regulatory risk going forward.” As more positive factors Best cited “CTPNZ’s reinsurance buffer for the 2010-11 earthquakes, decreasing capital requirements and the claims settlement pace seen so far. The company’s valuations of the 2010-11 earthquakes indicate that losses from each of the 2010-11 earthquakes remain within reinsurance limits, helping to protect the company from further capital erosion.” The report also notes that “CTPNZ announced its withdrawal from the New Zealand market on August 1, 2012 and ceased accepting new business at that time. Existing policies are anticipated to expire by August 31, 2013, while claims related to the 2010-11 earthquakes are anticipated to be settled by 2014. The removal of premium risk and continued claims settlements are anticipated to reduce the company’s capital requirements and support its risk-adjusted capitalization. Management expects reinsurance reinstatement costs to be substantially lower for the eight months prior to August 31, 2012, given the company’s reduction of sums insured. This would also contribute to the company’s declining capital requirements. A failure to meet the minimum regulatory capital level and a longer-than-anticipated run-off period (beyond 2014) could result in downward pressure to the company’s ratings.”

A.M. Best Co. has downgraded has the financial strength rating (FSR) to ‘B+’ (Good) from ‘B++’ (Good) and the issuer credit rating to “bbb-” (Good) from “bbb” (Good) of China Taiping Insurance (NZ) Company Limited (CTPNZ). The outlook for both ratings is stable. Best said its rating actions “reflect CTPNZ’s declining capital trend and marginal regulatory capital level within the next 36 months. The company’s capital position is anticipated to decline steadily as run-off expenses will exceed investment income, and is anticipated to be marginally above the regulatory minimum by 2014. As a result, any run-off expense overruns could expose CTPNZ to regulatory risk going forward.” As more positive factors Best cited “CTPNZ’s reinsurance buffer for the 2010-11 earthquakes, decreasing capital requirements and the claims settlement pace seen so far. The company’s valuations of the 2010-11 earthquakes indicate that losses from each of the 2010-11 earthquakes remain within reinsurance limits, helping to protect the company from further capital erosion.” The report also notes that “CTPNZ announced its withdrawal from the New Zealand market on August 1, 2012 and ceased accepting new business at that time. Existing policies are anticipated to expire by August 31, 2013, while claims related to the 2010-11 earthquakes are anticipated to be settled by 2014. The removal of premium risk and continued claims settlements are anticipated to reduce the company’s capital requirements and support its risk-adjusted capitalization. Management expects reinsurance reinstatement costs to be substantially lower for the eight months prior to August 31, 2012, given the company’s reduction of sums insured. This would also contribute to the company’s declining capital requirements. A failure to meet the minimum regulatory capital level and a longer-than-anticipated run-off period (beyond 2014) could result in downward pressure to the company’s ratings.”

A.M. Best Co. has assigned a debt rating of “bb” to the newly issued $150 million 8.25 percent non-cumulative perpetual preferred stock of Bermuda-based Maiden Holdings, Ltd., and has assigned a stable outlook for the rating. Best said “all remaining ratings of Maiden Holdings and its subsidiaries are unchanged.” The report also indicated that the “proceeds from the issuance will be used in continued support and development of Maiden Holdings’ reinsurance business and for other general corporate purposes. With the issuance of the preferred shares, Maiden Holdings’ adjusted debt-to-tangible capital is approximately 27 percent, which is within A.M. Best’s guidelines for its current rating level. In addition, Maiden Holdings’ interest coverage ratio is expected to remain adequate for its rating.”

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