Ratings Recap: Arch Re (Europe), Singapore Re, AIG (Taiwan), Eurasia, Hyundai (China)

Standard & Poor’s Ratings Services has assigned its ‘A’ counterparty credit and financial strength ratings to Arch Reinsurance Europe Underwriting Ltd. (Arch Re Europe), a newly formed Ireland-based operating subsidiary of the Bermuda-based Arch Capital Group Ltd. S&P also said that it affirmed its ‘BBB+’ counterparty credit rating on Arch Capital and its ‘A’ counterparty credit and financial strength ratings on Arch Capital’s core operating subsidiaries (collectively referred to as Arch). The outlook on all these companies is stable. “The ratings on Arch Re Europe are based on strong explicit support provided by Arch Capital in the form of an 85 percent quota-share reinsurance agreement and a stop-loss arrangement provided by Bermuda-based operating subsidiary Arch Reinsurance Ltd. (A/Stable/–),” explained credit analyst Laline Carvalho. S&P noted that Arch Re Europe began operations on Nov. 1, 2008. It said that “in addition to the explicit support arrangements, we expect Arch Re Europe to become Arch’s main platform for writing regional European reinsurance business, offering coverage for a wide range of property/casualty risks. Although we expect that Arch Re Europe’s gross writings will be modest for the first few years, premium volume at this operating subsidiary should grow over time. The ratings on Arch are based on the group’s strong competitive position, strong operating performance, strong and coherent management team and strategy, and extremely strong capital adequacy. Offsetting these positive factors are the group’s relative lack of history in operating through a soft cycle as well as potential reserve risk resulting from its significant amount of casualty writings. Although Arch’s results during the third quarter of 2008 were adversely affected by significant catastrophe losses from Hurricanes Ike and Gustav as well as realized and unrealized losses on its investment portfolio, these results were reasonable relative to the size of Arch’s capital and investment base. In addition, the group had very strong operating performance in the first six months of 2008, and we expect that full-year 2008 operating results will remain strong.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Singapore Reinsurance Corporation Limited with a stable outlook.
“The ratings reflect Singapore Re’s superior risk-adjusted capitalization level, improvement in underwriting results and stable investment income,” Best stated. “Singapore Re’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), further improved in 2007 due primarily to high retention of earnings. Given the company’s good operating profitability, Best said it “expects Singapore Re’s risk-adjusted capitalization to remain superior over the medium term. Singapore Re has maintained good underwriting performance over the past two years. The combined ratio decreased to 95.9 percent in 2007 from 105.7 percent in 2005. The improvement was attributed to better underwriting results of its bilateral cessions business, in which Singapore Re has a higher degree of flexibility in risk selection.

Standard & Poor’s Ratings Services has revised the CreditWatch status of its ‘A’ long-term counterparty credit rating and insurer financial strength rating on AIG General Insurance (Taiwan) Co. Ltd. to negative from developing. S&P said the revision follows its announcement on Nov. 5, 2008 that it had revised the CreditWatch status of most of the ratings on the AIG group’s P/C companies. “The AIG ratings were placed on CreditWatch with negative implications to reflect our view of the likelihood of increased pressure on the performance of the group’s property and casualty business,” explained credit analyst Susan Chu. S&P added that it “should resolve the CreditWatch status on AIG’s property/casualty insurance companies in 2009 when we should get a better picture of the group’s experience in pricing and retention.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Kazakhstan’s Eurasia Insurance Company JSC, both with stable outlooks. Best said the “ratings reflect Eurasia’s leading position in the Kazakhstan insurance and reinsurance markets, its very good business profile, strong risk-adjusted capitalization and excellent financial performance. An offsetting factor is its sharp decline in retention level and its limited financial flexibility.” Best also indicated that it “believes that Eurasia is likely to maintain its leading position in the domestic market as the key insurer and reinsurer, with a very good business profile that is supported by a continued increase in reinsurance business. Eurasia successfully maintained its share of
non-compulsory business (over 80 percent) with its main focus on property risks, followed by cargo and a diminishing reliance on liability risk.”

A.M. Best Co. has assigned a financial strength rating of ‘B++’ (Good) and an issuer credit rating of “bbb+” to Hyundai Insurance (China) Co., Ltd. (HIC), both with stable outlooks. “The ratings reflect HIC’s adequate risk-adjusted capitalization, ample liquidity with conservative investment portfolio and diversified underwriting portfolio,” said Best. The ratings agency also indicated that it “believes that HIC is positioned to benefit from the operational support of its parent, Hyundai Marine and Fire Insurance Co. Ltd., with regard to management expertise and reinsurance. HIC was established in March 2007 and provides a wide range of insurance products including commercial property, liability, engineering and cargo. Recently, the company started underwriting motor business to
further diversify its premium sources and increase its competitiveness in the China market. By leveraging the Hyundai brand name, HIC tapped into the Korean customer base in China, which accounted for more than 95 percent of HIC’s premium in 2007.”