Best Affirms Sirius International Group’s Ratings; Outlook Stable

October 8, 2012

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of Sweden’s Sirius International Insurance Corporation (publ).

Best also affirmed the ICR of “bbb” and the debt ratings of “bbb” on $400 million 6.375 percent senior unsecured notes, due in 2017 and “bb+” on $250 million non-cumulative perpetual preference shares of the Bermuda-based Sirius International Group, Ltd.

The outlook for all of the ratings remains stable.

Risk-adjusted capitalization for Sirius is “expected to remain strong, supported by an increase in retained earnings, which are expected to benefit from the benign catastrophe activity experienced in 2012 to date,” Best said. “Sirius’ claims paying ability continues to be enhanced by a safety reserve, which in accordance with Swedish insurance regulations, can normally only be released to cover insurance losses and is funded from the company’s cumulative retained pre-tax earnings. Sirius’ safety reserve at year-end 2011 amounted to SEK 9.6 billion [$1.4465 billion].

“In 2011, Sirius’ consolidated pre-tax profit fell to SEK 0.4 billion [$60.28 million] (2010: SEK 1.1 billion [$165.8 million]). Technical performance was severely impacted by a number of large catastrophes during 2011 including the Japanese earthquake and tsunami event, as well as the New Zealand earthquake, for which loss estimates as at second-quarter 2012 were US$72 million and US$46 million, respectively.

“The major catastrophe losses contributed approximately 20 percentage points to the overall loss ratio. Mainly as a result of this, Sirius’ combined ratio increased above its five-year average of 90.2 percent to just above 100.0 percent.” Best added that due to the benign catastrophe experience during the first half of 2012, it “expects a strong return to underwriting profitability by year end, supported by stable investment returns.”

In addition Best noted that “Sirius maintains a good business profile in the reinsurance market, writing business through an international network of branch offices. In 2011, Sirius’ gross written premiums decreased by around 20 percent, as a result of the restructuring and the commutation of quota share treaties with Esurance Insurance Company (a former subsidiary of Sirius’ ultimate parent, White Mountains Insurance Group, Ltd.) which was sold to Allstate Corporation.

“Sirius continues to focus on shorter-tail lines, with property reinsurance currently generating approximately half of net written premiums.

“Sirius America Insurance Company, a wholly owned subsidiary of Sirius, has an A.M. Best FSR of ‘A’ (Excellent) and an ICR of “a”. (See national section]

“Positive rating actions are unlikely at present. Negative rating actions could occur if there were a material deterioration in Sirius’ technical performance and/or a significant fall in its risk-adjusted capitalization.”

Source: A.M. Best-Europe

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