Ratings Roundup: Lloyd’s (debt), PartnerRe, Pacific Int’l., Amerinst

A.M. Best Co. has commented that its ratings of Lloyd’s of London, Lloyd’s Reinsurance Company (China) Limited, the Society of Lloyd’s and of debt issued by the Society remain unchanged following the announcement that the Society has offered to repurchase up to £100 million ($148 million) nominal value of its subordinated loan notes. Best explained that “as a result of the repurchase, a gain to the Society is likely to be crystallized because the debt issues currently trade at a significant discount to nominal value.” Best also said it “believes that Lloyd’s risk-adjusted capitalization will remain strong, taking into account the Society’s repurchase plans and the offsetting gain that is likely to result from the repurchase.”

Standard & Poor’s Ratings Services has assigned its preliminary ‘A’ senior debt, ‘A-‘ subordinated debt, and ‘BBB+’ preferred stock ratings on Bermuda-based reinsurance holding company PartnerRe Ltd.’s recently filed automatic mixed securities shelf. S&P has also affirmed its ‘A’ counterparty credit rating on PartnerRe, as well as its ‘AA-‘ counterparty credit and financial strength ratings on the operating subsidiaries. The outlook on all of these entities remains stable. “The ratings affirmation is based on the group’s very strong competitive position, strong operating performance, excellent enterprise risk management, and improved capital adequacy in recent years,” explained credit analyst Laline Carvalho. “Offsetting these positive factors are the group’s potential underwriting volatility because of low retrocessional use and a historically lower-than-peer-group capital adequacy ratio.” She added: “We do not expect any material change in PartnerRe’s financial leverage over the next six to 12 months as a result of the mixed shelf filing, which consists of the renewal of the group’s 2006 shelf, which has expired.” S&P further noted that in January 2009, “PartnerRe paid down $200 million in debt due in April 2009 through internal funds. In addition, in March 2009, the group repurchased $186.6 million of its $250 million in junior subordinated capital efficient notes due in 2066 through a tender offer. As a result of these actions, PartnerRe’s total debt plus hybrids-to-total capital ratio fell to a pro forma 22 percent from 28 percent at year-end 2008. In addition to improved leverage, the group also benefits from strong liquidity supported by continued strong operating cash flows, significant cash and short-term investments on the balance sheet, and a credit facility that remains in place through September 2010. Additionally, other than $200 million in debt coming due in July 2010 (which we believe PartnerRe can pay down through internal funds if necessary), the group has no other debt coming due in the next five years.”

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of New Zealand-based Pacific International Insurance Limited (PII), both with positive outlooks. Best said: “The ratings reflect PII’s solid risk-adjusted capitalization, consistent operating profitability and corresponding strong surplus accumulation. The ratings also acknowledge the new reinsurance structure effective November 2008. PII’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remained solid in 2008. Although the company’s risk-adjusted capitalization weakened in 2008 due to an increase in shareholders’ loans, a portion of these loans have been subsequently repaid during the first quarter of 2009. The company’s risk-adjusted capitalization is projected to move upward resulting from the strengthening of capital and surplus and a reduction in asset risk.” In addition Best noted the Company’s “operating profitability” and good investment returns.

A.M. Best Co. has placed under review with negative implications the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Bermuda-based AmerInst Insurance Group Ltd. Best said it took the action “due to the written notice from CNA Financial Corporation stating that CNA does not intend to renew the reinsurance program it has with AmerInst, effective January 1, 2010. AmerInst participates as a reinsurer of policies issued under the AICPA Professional Liability Insurance Plan, which is exclusively underwritten by CNA. This program currently accounts for 95 percent of AmerInst’s business.” Best added that the ratings would remain under review pending its analysis and “further discussions with management about its business plan going forward.”