Best Affirms Mondial Assistance, Jefferson ‘A’ Ratings; Outlook Stable

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a+” of Swiss-based Mondial Assistance International AG (MAI) and its U.S. subsidiary, New York-based Jefferson Insurance Company. The outlook for all of the ratings remains stable.

“The ratings of MAI reflect its adequate risk-adjusted capitalization, resilient operating performance and excellent business profile as a leading provider of travel insurance and assistance business,” said Best. “Additionally, the ratings reflect implicit support from the company’s ultimate parent, Allianz Societas Europaea.” The ratings of Jefferson Insurance Company reflect enhancement due to explicit support provided by MAI in the form of a 90 percent quota share reinsurance treaty.”

Best added that it “views MAI’s stand-alone risk-adjusted capitalization as adequate, taking into account the low underwriting volatility that characterizes its specialist lines of business, which is reflected in a highly stable loss ratio. In addition, consistent with the short-tail nature of MAI’s insurance liabilities, its investment portfolio includes a significant element of cash and highly liquid investment-grade bonds. However, a partially offsetting factor is constraint placed on capitalization by the high dividend pay-out requirements of Allianz.”

Best said it expects MAI’s pre-tax earnings “to improve as a result of more favorable claims experience, stable investment income and lower exchange rate volatility. MAI’s operating performance has proved resilient in the current difficult market conditions. Although demand for its products remained weak in 2008, MAI reported positive pre-tax earnings of CHF 40.8 million [$40.44 million]”, somewhat below Best’s original expectations. The combined ratio increased to 98 percent from 92 percent, and net income was hit by net currency exchange losses of CHF 14.1 million.

MAI’s main lines of business are travel insurance and roadside assistance, areas where the company has built a strong brand and extensive expertise. Best indicated that “demand for MAI’s products is likely to remain subdued over the near term.” The rating agency nonetheless “continues to believe the company will be able to maintain its solid business position through disciplined expansion in growing markets such as Brazil and China and in emerging lines of business such as health care and home assistance for the elderly.”

Best anticipates that MAI’s gross written premiums will increase to nearly CHF 900 million [$892 million] in 2009 from CHF 868 million [$860.3 million] in 2008.

Source: A.M. Best – www.ambest.com