Ratings Recap: Jordan Plc, Builders Re S.A., Sava Re, Allianz (Notes)

December 17, 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 Jordan Insurance Company Plc (JIC), both with stable outlooks. Best said the “ratings reflect JIC’s solid business position in Jordan, robust operating performance and strong risk-adjusted capitalization. JIC has an established position in Jordan where it is ranked the second-largest insurance company by gross written premium (GWP). JIC’s GWP reached JOD 46 million ($56 million) in 2011, representing a market share of approximately 10 percent. In addition, JIC’s portfolio is well distributed by lines of business on a gross basis as a result of intense product development over the years and increasing insurance awareness of the local population.” Best added that in the future it “expects JIC to continue growing between 5 percent and 10 percent over each of the next two years, and to remain focused in the local market.” The report also points out that “JIC remained one of the most profitable companies in Jordan in 2011. Profit before tax stood at approximately JOD 3 million $4.3 million) and represented a return over adjusted capital and surplus of 7.1 percent.” Best noted that even though “technical profitability has been impacted by an underperforming motor compulsory third party liability, JIC has experienced a good level of profitability throughout its portfolio. Investments remain highly concentrated in equities and real estate and produced an investment yield of 3.9 percent in 2011. JIC’s risk-adjusted capitalization is strong, benefiting from a historically good level of earnings and profit retention. Furthermore, JIC’s risk-adjusted capitalization benefits from a good level of business leverage, a comprehensive reinsurance program of good credit quality and is partially offset by the company’s investment portfolio, given the concentration of investment in equities and real estate.” In Best’s opinion, “JIC’s risk-adjusted capitalization is likely to remain supportive of the company’s business plan over the medium term. Going forward, downward rating movement could occur through a material deterioration in JIC’s risk-adjusted capital level or by an increase Jordan’s country risk. Upward rating movement is unlikely over the medium term.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Luxembourg-based Builders Reinsurance S.A. (BRe), the reinsurance arm of Hochtief A.G., a large Germany-based construction company. Grupo ACS (Spain) has a majority shareholding in the group. The outlook for both ratings remains stable. Best said the ratings reflect BRe’s “strong and supportive risk-adjusted capitalization, an overall good financial performance and a developing risk management framework. BRe provides reinsurance cover on risks emanating from group business and associated third party business, predominantly in the Americas. The company writes workers’ compensation, general liability and subcontractors’ default insurance, and to a minor extent, surety, builders’ risk and marine and aviation.” Best’s report added that it believes “BRe has a strong and supportive risk-adjusted capitalization, which is underpinned by both a regulatory requirement of building up equalization reserves and a comprehensive reinsurance program.” In Best’s view “those factors will support BRe’s capitalization going forward, despite the fact that the company has repatriated $40 million in share premium to its parent in 2012 and is potentially planning to repatriate a further $120 million over a period of three years. BRe achieved a good financial performance in 2011, which produced $50 million in net profit. Going forward, a strong loss ratio of just below 50 percent is expected to support a continuing good underwriting performance that has been seen in the last three years.” Best noted, however, that “due to a concentration of lines of business that are closely linked to the property market in the United States, fluctuations are also closely linked to external factors impacting that segment. Nevertheless, the severity of losses is mitigated by the company’s reduced level of retention per risk.” In Best’s view, “BRe is continuing to develop a formalized corporate government structure aimed at improving risk management processes. BRe is preparing for Solvency II regulatory requirements and is currently working towards the alignment to Pillar II. Upward rating movements are unlikely at present. Negative rating actions could occur if BRe’s underwriting profitability were to trend negatively going forward. A significant deterioration of risk-adjusted capitalization would also put negative pressure on the ratings.”

A.M. Best Europe – Rating Services Ltd. has commented that the financial strength rating of ‘A’- (Excellent) and issuer credit rating of “a-” of Slovenia’s Pozavarovalnica Sava d.d. (Sava Re) remain unchanged following the announcement of the acquisition of an additional share in the Slovenian insurance company, Zavarovalnica Maribor d.d. (Maribor). The outlook for all of the ratings remains stable. Best explained that “Maribor is one of Slovenia’s leading direct insurers, and by acquiring the remaining shares of Maribor, Sava Re will become one of the largest insurance groups in the Western Balkans. Best also indicated that in its opinion,” the improved business profile will strengthen the company’s competitive position in its domestic market. Sava Re, together with its minority shareholder the Slovenian Restitution Fund (SOD) (a government related entity), has signed a share purchase agreement for the remaining 50.99 percent share of Maribor. Sava Re will invest €15 million [$19.725 million] for an additional 11.79 percent share, increasing its total shareholding in Maribor to 60.47 percent.” According to Best’s proprietary capital model, Sava Re’s level of risk-adjusted capitalization “will remain supportive of the current ratings. Concurrently, SOD will contribute EUR 50 million to achieve an ownership of 39.21 percent. The potential impact of this transaction has already been factored in the current ratings. Sava Re will hold a General Meeting on 11 January 2013, voting on increasing the share capital by €55 million [$72.325 million] by the end of April 2013, in order to purchase the shareholding of the SOD in Maribor.”

A.M. Best Europe – Rating Services Limited has assigned a debt rating of “a+” to the undated $1 billion [€1.315 billion] junior subordinated notes issued by Germany’s Allianz SE, with a stable outlook. “The subordinated notes will pay a fixed annual coupon of 5.5 percent. The proceeds of the issue are to be used by Allianz SE for general corporate purposes and to replace the debt maturing in November 2012,” Best explained; adding that the “financial and debt leverage ratios remain within A.M. Best’s tolerance levels for the ratings.” At the same time Best withdrew the debt rating of “aa-” on the €900 million [$1.184 billion] 5.625 percent senior unsecured notes issued by Allianz Finance II B.V. and guaranteed by Allianz SE as the debt matured in November 2012.

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