Ratings Recap: Aspen, Munich Re (Malta), Qatar, Nissan, CMI, Takaful, Int’l.

A.M. Best Co. has affirmed the financial strength ratings of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a” of Aspen Insurance UK Limited (AIUK) and Bermuda-based Aspen Insurance Limited (AIL) (Bermuda). Best also affirmed the ICR of “bbb” of Aspen Insurance Holdings Limited of Bermuda, the non-operating holding company of the Aspen group of companies, and the debt rating of “bbb” on the $250 million 6 percent senior unsecured notes issued by Aspen. The $ 200 million perpetual non-cumulative preference shares and the $ 230 million perpetual preferred income equity replacement securities, also issued by Aspen, have been upgraded to “bb+” from “bb”. In addition Best affirmed the ratings for Aspen’s universal shelf registrations of “bbb,” “bbb-” and “bbb-” on senior unsecured debt, subordinated debt and the junior subordinated debt and upgraded the preferred stock to “bb+” from “bb”. The outlook for all ratings remains stable. Best said it “believes that AIL and AIUK are likely to maintain excellent risk-adjusted capitalization in 2008. Additionally, AIL and AIUK will continue to benefit from the financial flexibility of their parent, which is expected to maintain excellent consolidated risk-adjusted capitalization in 2008. Aspen continues to balance its spread of risk between AIL and AIUK through the use of the group’s intra-group quota share arrangements.” In Best’s opinion the “level of capital held at AIL is likely to be sufficiently strong to support the company’s increased underwriting exposure, arising from the overall higher reinsurance ceded through quota shares from AIUK and its new reinsurance arrangement with Aspen Underwriting Limited (AUL) (Aspen’s corporate member for Lloyd’s Syndicate 4711).” Best also indicated that it “believes that AIL and AIUK will report strong pre-tax profits in 2008. Good underwriting performance is anticipated, notwithstanding the impact of hurricanes Gustav and Ike and softening in rates.” Best added that it believes “Aspen will generate a positive, albeit lower investment return in 2008, despite the turbulence in the financial markets. Financial performance for both entities is expected to be enhanced by the group’s conservative investment strategy.”

Standard & Poor’s Ratings Services has assigned its ‘AA-‘ counterparty credit and insurer financial strength ratings to Malta-based reinsurer Munich Re of Malta PLC (MROM) with a stable outlook. “The ratings reflect MROM’s core status to Germany-based global reinsurer Munich Reinsurance Co. (AA-/Stable/–),” said S&P. “MROM is expected to predominantly write global group-internal business or business acquired by Munich Re’s group underwriters and to fully benefit from the expertise of the group.” Credit analyst Ralf Bender added: “We expect the company to be strongly capitalized and to receive financial backing from its parent, Munich Re, if needed. We expect liquidity to be strong and earnings volatility to be moderate.” MROM’s business model is set up to minimize the influence of its sovereign, the Republic of Malta (A/Stable/A-1), on its credit quality. In addition S&P listed the following major rating factors:
— Standard & Poor’s considers MROM a core operation of Munich Re. MROM will write global group-internal insurance and reinsurance business from key regions of the Munich Re group. It is well-integrated in the group and fully benefits from the group’s underwriting, claims, risk-management, and investment expertise. MROM aims to take advantage of the favorable operating environment in Malta.
— The majority of MROM’s business will emanate from group affiliates in its first years of operation. Over the medium term, MROM also aims to underwrite third-party reinsurance business directly, although only business acquired by Munich Re’s group underwriters and key client managers, as an alternative risk carrier for certain contracts of key global clients.
— MROM is expected to be strongly capitalized and to fully benefit from the financial flexibility of the group if needed. We expect MROM’s risk-based capitalization to be managed at least in the ‘A’ category and the group to make additional financial resources available if needed.
— The company has sound liquidity. Its asset base is expected to comprise a highly liquid bond portfolio, which should allow the company to meet liabilities in a timely manner.
— MROM is expected to underwrite life and non-life contracts that have a proven track record of stable underwriting results within the group in order to take full advantage of the favorable regulatory and fiscal environment and limit its need for reinsurance protection.
— MROM was set up in a way that significantly limits the influence of its sovereign on its credit quality. We expect the company’s assets to comprise non-local government bonds, mainly denominated in Euro or other currencies that match its liabilities. All investments are held on accounts outside of Malta, and very limited domestic business is expected to be underwritten. The company outsources a limited amount of administrative functions to Maltese providers. As a result, we expect MROM to be able to meet its obligations even in the unexpected event of sovereign stress.
“The stable outlook on MROM reflects the outlook on its ultimate parent Munich Re,” Bender added. “As such, any revision of the rating or outlook on Munich Re will trigger a similar revision on MROM.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating of “bbb+” of Qatar General Insurance and Reinsurance Company (S.A.Q.) (QGIR), both with stable outlooks. “The ratings reflect QGIR’s strong capital position, continued improving financial performance and established business position,” said Best. “An offsetting factor is its underdeveloped enterprise risk management and its overall low retention level impacted by its concentration in energy risks. QGIR has a strong prospective level of risk-adjusted capitalization, supported by solid retained earnings and benefiting from considerable gains on its real estate portfolio.” In Best’s view, “QGIR’s absolute level of capital is sufficiently strong to absorb fluctuations in its investment portfolio and projected growth of 15 percent in each of the next two years. Additionally, the company is in the process of developing its enterprise risk management function, which will require embedding over the next two years.” Best said it “expects QGIR to maintain its strong position in the Qatari market, where it has approximately 30 percent of the market share.”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Bermuda-based Nissan Global Reinsurance, Ltd. with stable outlooks. Best said: “The ratings reflect NGRe’s strong capitalization and conservative operating strategy. The ratings also consider the company’s critical role and favorable profile as part of the Nissan Motor Co. Ltd., well as its excellent operating performance since inception in 2005. Partially offsetting these positive rating factors are the significant exposures NGRe has to product liability, property and marine cargo claims. Additionally, the current deterioration in the financial markets and the decline in the profitability of automakers is expected to impact premium volumes and investment results. NGRe is a single parent captive of Nissan Motor Co. Ltd., the seventh largest automaker in the world and third largest in Japan. NGRe operates two distinctive lines of business: (1) global property and casualty (P&C) programs for Nissan including global property (United States, Japan, Europe, Mexico and South Africa), U.S. workers’ compensation, U.S. and Japan product liability and marine transport, and (2) global platform for extended service contract (ESC) business. NGRe benefits from the group’s extensive risk management and loss control programs. The captive operates at conservative underwriting leverage levels; however, it provides coverages with large limits, and its gross exposures per loss occurrence are therefore elevated.”

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Bermuda-based Commercial & Manufacturers Insurance Limited (CMI), both with negative outlooks. Best concurrently withdrew the ratings at the company’s request and assigned a category NR-4 to the FSR and an “nr” to the ICR. “The ratings consider CMI’s low underwriting leverage, conservative operating strategy and strong liquidity,” Best continued. “The ratings also recognize the unique position of CMI and management’s expertise in serving a niche market covering the commercial liability needs of members of the Tooling, Manufacturing & Technologies Association over many years.” Best added that the “ratings also consider CMI’s generally declining surplus levels from negative operating results and its weakened market profile in the softening insurance market. In addition, CMI has high gross and net retentions per occurrence relative to its surplus and premium volumes. CMI’s volatile overall operating performance reflects some large claims in recent years, and competitive market conditions have resulted in stockholder redemptions and premium fluctuation over the years. As overall operating results have been burdened by elevated loss expenses, the company has taken steps to reduce operating expenses. Nevertheless, high operating expense ratios will continue to present a challenge. CMI’s limited market profile is due to its low premium volume and geographical concentration in the Michigan machine/tooling industry, a sector subject to difficult economic conditions.”

Standard & Poor’s Ratings Services has assigned its long-term ‘BBB’ counterparty credit and insurer financial strength ratings to Takaful International Co. BSC (TIC) of Bahrain with a stable outlook. “The ratings on Bahraini-based composite insurer TIC reflect good operating performance and good financial flexibility,” stated credit analyst Kevin Willis. “These positive factors are partially offset by the absolute small size of the company, operating in the relatively small Gulf Cooperation Council (GCC) market of Bahrain, and only adequate capitalization at the current level,” he added. Willis indicated that the “stable outlook reflects our expectation that TIC will reinforce its current capitalization in 2009, thereby supporting its growing business base and expanding competitive position.” S&P noted that “earnings will continue to be good, with the takaful fund continuing to deliver surpluses for members. The assets will reflect good liquidity and provide cover to technical and other liabilities. TIC’s competitive position will grow within Bahrain, but remain focused on this relatively small market. Positive rating action is unlikely in the rating horizon. Negative rating action would be prompted by failure to strengthen capitalization in the first half of 2009, to a position where capital adequacy was strong. Negative rating action would also result from any weakening of its earnings or competitive position.”