Best Affirms SCOR Ratings; Upgrades Converium; Off Review

A.M. Best Co. has affirmed the financial strength rating (FSR) of “A-” (Excellent) and the issuer credit rating (ICR) of “a-” of France’s SCOR Group and its rated subsidiaries. Best also affirmed the senior debt and subordinated debt either issued or guaranteed by SCOR.

In addition Best has removed the ratings from under review with negative implications, and has assigned them a stable outlook.

In a related action Best said it has “upgraded the FSR to ‘A-” (Excellent) from ‘B++’ (Good) and the ICR to ‘a-‘ from ‘bbb+’ of Converium AG (Switzerland) and its rated subsidiaries.” Those ratings have now been removed from under review with positive implications, and assigned a stable outlook.

Concurrently, Best upgraded the FSR to “A-” (Excellent) from “B++” (Good) and the ICR to “a-” from “bbb+” of Delaware-based Investors Insurance Corporation (IIC), and assigned a stable outlook.

Best’s said the ratings actions reflect its “expectation that the company will maintain its strong consolidated risk-adjusted capitalization, despite the significant goodwill accrued as a result of the acquisition of Converium. Other rating factors include SCOR’s excellent business profile in the European markets, which has been further enhanced through the acquisition of Converium, and its excellent operating performance.”

After stating its opinion on the soon to be combined companies’ capitalization, which it sees as remaining “strong,” Best noted that SCOR has recovered strongly from financial difficulties that nearly sank the Group (See IJ web site June 23, 2005, Sept. 11 2003; Nov. 5, 2002 and related articles).

SCOR now enjoys “an excellent business profile in the European non-life market and life reinsurance markets,” said Best. “The improved financial strength has enabled SCOR to regain non-life business throughout 2006 and during the European renewal season earlier this year.”

Best also noted the successful integration of German life reinsurer Revios into the group, which significantly improved SCOR’s life reinsurance franchise. “The Converium acquisition is enhancing SCOR’s business position, particularly in specialty lines where Converium has a strong presence, such as marine and energy and the participation in the aviation underwriter GAUM.”

However, Best said it doesn’t expect SCOR to “retain the entire Converium portfolio partially due to policyholders’ decision to reduce their combined share but also as a result of SCOR’s ongoing due diligence.”

After noting that SCOR’s first quarter earnings had been quite good, Best said it expects the Company to “maintain its underwriting standards despite the pressure on premium rates and the challenge from the integration of the Converium portfolio.” There may be some deterioration in 2007 in the combined group’s underwriting “as a result of Converium’s stronger focus on long-tail liability business, where combined ratios are expected to remain above 100 percent,” said Best. “As a result of the acquisition, the combined ratio will also have a higher exposure to natural catastrophes in 2007, although this is being reviewed for 2008 renewals.”

Commenting on its upgrade of Converium’s ratings Best said they reflect the expected integration of the Company as a “key member” of the SCOR Group. “Other factors include the company’s continuing improvement of its risk-adjusted capitalization following the sale of its North American run-off subsidiaries,” Best continued. “However,
Converium’s underwriting results are expected to remain negative in 2007 despite improvements in the property lines. In particular, the combined ratio of the long-tail liability business is expected to continue to be significantly above 100 percent but should nevertheless be compensated by future investment returns.

“The upgrade in the rating of IIC reflects SCOR’s renewed commitment to use IIC to write business in the United States market. This support includes a capital contribution, which will bring its risk-adjusted capital level in line with other similarly rated members of the group. Resources will be devoted to restarting marketing activities, including a relationship with an affiliated marketing company. IIC will be rebranded as a member of the SCOR Global Life Group.”

For a complete listing of SCOR’s and Converium AG’s FSRs, ICRs and debt ratings, go to: www.ambest.com/press/082004scorfrance.pdf.

Source: A.M. Best