Ratings Recap: Solid, Allianz France, Risk Re

March 25, 2013

A.M. Best Europe – Rating Services Limited has upgraded the issuer credit rating to “bbb+” from “bbb” and affirmed the financial strength rating of ‘B++’ (Good) of Sweden’s Solid Forsakringsaktiebolag, both with stable outlooks. Best said, its “ratings of Solid reflect its strong risk-adjusted capitalization, good operating performance and good business profile as a niche extended warranty insurer.” In addition Best noted that the company’s “risk-adjusted capitalization is expected to increase in 2012, driven by an increase in retained earnings, as well as a fall in underwriting risk. Solid’s claims paying ability continues to be enhanced by the safety reserve, which is expected to account for approximately 80 percent of total capital and surplus in 2012.” Best also explained that, in accordance with Swedish insurance regulations, “the safety reserve can only be released to cover insurance losses and is funded from the company’s cumulative retained pre-tax earnings. In July 2012, Nordic Capital, a private equity fund that invests in companies in the Nordic region, acquired a 55 percent stake in Resurs Holding AB.” Due to this development, Best said it “anticipates a change in Solid’s executive management. Given Nordic Capital’s funds and resources, the majority shareholder is expected to enhance Solid’s financial flexibility. Additionally, the company continues to reduce its exposure to its affiliate, Resurs Bank AB. Cash placed at Resurs Bank is expected to account for less than 25 percent of the company’s total investments in 2012 (2011: approximately 35 percent).” Best also indicated that “pre-tax profit is expected to increase in 2012, driven by good investment returns, in particular large unrealized gains on the company’s bond portfolio. In 2012, underwriting income is likely to decrease as a result of rising expenses relating to the newer lines of business. Over the last two years, Solid has established its own in-house claims handling department to accommodate the growth of the motor and property portfolios. Furthermore, acquisition costs remain high as the company continues to source a large portion of its motor portfolio from comparison websites. However, as Solid’s motor portfolio matures and renewals grow, acquisition costs are likely to decrease.” Best said: “Solid maintains a good niche position within the Swedish extended warranty market. In 2012, net written premium (NWP) is expected to decrease to approximately SEK 1.0 billion [$154.3 million] (2011: SEK 1.2 billion [$185.13 million]), following the move from three-year to one-year policies on the extended warranty portfolio. This effect has been partially offset by growth on newer lines of business, and in 2012, the motor portfolio is expected to account for approximately 5 percent of total NWP, compared to around 2 percent in the previous year.” In addition Best noted that the “property and motor portfolios continue to be protected by an 85 percent quota share treaty, and forecast growth for these lines of business is expected to continue at a moderate rate. Positive rating movements could occur if Solid is able to generate a good, stable business profile in its newer lines of business whilst maintaining strong technical results. Negative rating movements could occur if there were a deterioration in Solid’s underwriting and/or overall results, as well as a deterioration in risk-adjusted capitalization. In addition, an increased reliance on affiliated companies may have a negative impact on the ratings.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Allianz IARD and Allianz Vie, the main subsidiaries of Allianz France SA, and the ICR of “a-” for Allianz France SA. The debt rating of “bbb+” on €400 million [$520 million] 4.625 percent junior subordinated bonds due 2015 issued by Allianz France SA remains unchanged. The outlook for all ratings remains stable. Best then said it has withdrawn the ratings due to the companies’ request to no longer participate in Best’s interactive rating process. The rating affirmations “reflect the companies’ solid level of risk-adjusted capitalization, strong business position in France and good track record of profitability,” said the announcement. “The ratings for Allianz IARD and Allianz Vie also reflect their strategic importance in the Allianz group and the implicit support of Allianz Societas Europaea, which owns 100 percent of Allianz France SA.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating of “aa-” of Cayman Islands-based Risk Reinsurance Limited (RRL), both with stable outlooks. Best said “the ratings reflect RRL’s superior capitalization and balance sheet strength, profitable results, as well as the strategic role it performs as a captive insurance company for Transpower New Zealand Limited, a state-owned enterprise of the Government of New Zealand.” As a partial offsetting factor Best cited the fact that “Transpower’s business is limited to hazards with the potential for a substantial loss for RRL.” The bulletin explained that “RRL has experienced extensive earthquake activity within the past 30 months and has exhibited excellent maintenance of adequate surplus levels. The company cedes excess exposure layers to reinsurers with strong FSRs. RRL does not insure any third-party risks. All investment assets are placed in a conservative and highly liquid portfolio consisting of cash equivalents and bonds. Investments are restricted to the New Zealand, Australian and U.S. dollar-denominated instruments. RRL benefits from Transpower’s strict adherence to the New Zealand regulatory risk management framework, enhanced by its own integration within its parent’s risk structure.” Best also noted: “RRL benefits from the strong implied support of Transpower, which provides RRL with additional levels of financial flexibility. RRL has the advantage of the dedicated attention of its management team to ensure its sound operation and financial security.” Best said it is “unlikely” that it will “upgrade RRL from its current rating level, given its overall business profile. Potential negative rating actions could result if RRL stopped being supported by Transpower with regard to surplus levels.”

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