Ratings: RSA Canada, Korean Re, New India, Labuan Re, Al-Ahleia, Generali/Volksfuersorge, GCAN

A.M. Best Co. has upgraded the financial strength ratings (FSR) to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit ratings (ICR) to “a” from “a-” of Royal & Sun Alliance Insurance Company of Canada (RSA Canada), Quebec Assurance Company and Western Assurance Company – collectively RSA Group of Canada. Best also affirmed the FSR of ‘B+’ (Good) and ICR of “bbb-” of Ascentus Insurance Ltd., as well as the FSR of ‘B’ (Fair) and ICR of “bb” of Unifund Assurance Company and the FSR of ‘B’ (Fair) and ICR of “bb+” of Canadian Northern Shield Insurance Company (CNS). The outlook for all ratings is stable. All companies are members of RSA Canada Group. Best said the rating actions on RSA Group of Canada reflect its viewpoint that the “group maintains strong risk-adjusted capitalization, solid investment income and sound reserve development. The group has produced solid underwriting results, which have consistently increased equity over the last five years. Collectively, the group provides commercial property/casualty coverage as well as personal and specialty coverages throughout Canada. The companies’ maintain a presence in all of the Canadian provinces and distribute their product range through multiple distribution channels, including a large independent broker network.” In addition Best said the rating actions reflect “Canada’s strong integration with Royal & Sun Alliance Insurance Plc (RSA) through its systems and procedures, and its significant contribution to the group’s overall profit. For the individual companies Best said the ratings of Ascentus are based on its “solid level of capitalization, which supports its underwriting and investment risk. The level of premium volume has sharply declined in recent years, since all private passenger auto and personal property business was renewed into RSA Canada.” The ratings of Unifund recognize its “improved risk-adjusted capitalization, consistent operating performance and favorable reserve development. The ratings also reflect Unifund’s strategic role within RSA, as well the explicit support it receives as a member of the RSA Canada Group. Historically, Unifund has been a growth vehicle for the overall Canadian organization. In prior years, rapid premium expansion outpaced equity growth, which resulted in elevated underwriting leverage measures and a sharp decline in overall risk-adjusted capitalization. More recently, premium levels have stabilized, equity has increased and overall risk-adjusted capitalization has improved. However, Unifund remains highly leveraged as net and gross underwriting leverage ratios exceed the industry composite. The company primarily is a writer of personal lines insurance for associations and groups throughout Ontario, Alberta, Newfoundland and Labrador and Nova Scotia.” The ratings of CNS reflect its “elevated underwriting leverage, high underwriting expenses and adequate operating performance. CNS affords RSA Canada improved geographic diversity, increased distribution and growth opportunities within British Columbia, where a majority of its premiums are written. CNS is fully integrated into RSA’s operations and continues to benefit from the implicit and explicit support it receives as a member of the RSA Canada Group.” Best added that going forward it remains concerned about “softening market conditions, fierce competition and the long-term benefits of regulated product reforms to auto insurance in the core operating territories of Ontario and Alberta. As a result, RSA Canada Group will be challenged to maintain current levels of profitability.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Korean Reinsurance Company. The ratings reflect Korean Re’s “stable operating performance, dominant market position in the Korean reinsurance industry and its sound capitalization,” said Best. The positive outlook reflects the “improvement in the overseas book of business and the continuous improvement in capitalization. Korean Re’s portfolio consists of three main groups: domestic personal business, domestic commercial business and overseas business. While the domestic businesses generated stable and sound income over the past five years, the overseas business showed a high combined ratio exceeding 100 percent in fiscal years 2007 and 2008. The company has taken some drastic actions since the second half of fiscal year 2008, cutting the non-profitable business and tightening its underwriting guidelines. The loss ratio has stabilized in fiscal year 2009, and the overseas business is expected to contribute to Korean Re’s overall profit going forward.” Best added that due to an “improvement of the underwriting performance, Korean Re maintains a conservative investment strategy, whereby most of its invested assets are concentrated in fixed income securities with high credit quality. Because of this asset allocation, net investment yield has been very stable at 4 percent-5 percent over the last five years. The company grew its invested assets over the last five years, and investment income increased every year by double digits with no yearly decline. The investment income for fiscal year 2008 was KRW 127 billion [$110 million] and is expected to exceed KRW 140 billion |$122 million] in fiscal year 2009. In the event of a market interest rate increase, Korean Re will benefit as the liability has no interest rate burden. As the growth of the overseas business slowed down in fiscal year 2009 and with the profitability improving, Best expects that Korean Re’s capitalization will improve in fiscal year 2009. Best also recognizes the company’s strong risk management in place. The company sets risk limits in major risk categories and monitors them regularly.” However the “strong competition in the Asian reinsurance market and the increasing premium retention of Korean direct companies,” should be considered as offsetting factors. Nonetheless, Best continued, “as the sole domestic reinsurer, Korean Re has a dominant presence in the Korean reinsurance market.” Although this position will not change in the foreseeable future, Best noted that the “large non-life players in the market have been increasing their premium retention in line with the improvement of their own capitalization.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of The New India Assurance Company Limited, both with stable outlooks. The ratings reflect New India’s “strong risk-adjusted capitalization and prominent business profile in the Indian insurance market,” said Best. “New India’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), supports its current rating level. However, the company’s risk-adjusted capitalization is highly exposed to the Indian equity market (on a market value basis, 44 percent of its invested assets were in equities). In recent years, movement in the Indian equity market has caused New India’s risk-adjusted capitalization to be volatile. New India’s business profile remains strong, with the company maintaining its lead business position in the domestic market. Competitive pressures from other government-owned and private insurers have continued, with New India growing at a slower rate than the market for the 12 months to March 2009. The premium growth gap between public and private insurers has narrowed substantially, suggesting that the market is stabilizing.” As offsetting factors Best cited the company’s “poor underwriting performance and its subsequent reliance on investment income to generate profits.” New India’s underwriting performance deteriorated further in fiscal year 2009, with an increase in underwriting losses to INR 14.4 billion |$30.2 million] from INR 8.4 billion [$18.12 million] in fiscal year 2008. This increase was due predominantly to increased pension liability costs and provisions for salary arrears. The company expects to generate underwriting losses in the coming few years. As a result best stressed that “New India is heavily reliant on investment income to offset its underwriting losses. However, its investment performance is heavily influenced by the Indian equity market.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Malaysia’s Labuan Reinsurance (L) Ltd. both with stable outlooks. Best said the ratings reflect Labuan Re’s “stable loss ratio, lower management expense ratio and well balanced portfolio with diversified geographic risk.” The rating agency also noted that, “although Labuan Re was hit by several catastrophe claims, it reported a loss ratio of 64.7 percent in 2008. Prior to 2008, Labuan Re maintained a stable loss ratio in the range of 61.1 percent – 65.1 percent over the past five years, demonstrating its ability to generate profitable underwriting business as well as highlighting the improvement in its underwriting techniques.” Labuan Re slightly increased its management expense to $13.5 million in 2008 from $13.0 million in 2007. As the net premium written also had increased, the management expense ratio (management expense/net premium written) decreased by 1 percentage point to 7.0 percent in 2008. Best also pointed out that Labuan Re had a “sound spread of business composition, with 22 percent of gross premiums written generated from Malaysia, 43 percent from Lloyd’s and 35 percent from other overseas markets in the Middle East and Asia. The participation in Lloyd’s increased the international diversification of the company’s underwriting portfolio. The European and North American risk exposure in the Lloyd’s portfolio offers instant diversification to Labuan Re’s primarily Asian risk exposure.” As offsetting factors, Best cited “higher underwriting risk and intense competition in the Asian reinsurance market.” Best added that it believes that Labuan Re’s “current risk-adjusted capitalization is adequate to support its ratings. However, due to increases in premiums written and further participation in new Lloyd’s syndicates, the risk-adjusted capitalization, as demonstrated by Best’s Capital Adequacy Ratio (BCAR), has shown a downward trend over the past three years.” Best also said it “believes that there will be pressure on Labuan Re’s ratings if the risk-adjusted capitalization further deteriorates. Labuan Re’s net premiums written increased by 20.9 percent in 2007 and 18.3 percent in 2008, respectively, and its exposure to the Lloyd’s market increased to $69.9 million as at year-end 2008 from $39 million at year-end 2006.

Standard & Poor’s Ratings Services has revised its outlook on Kuwait-based composite insurer Al-Ahleia Insurance Co. S.A.K. to stable from negative. S&P also affirmed the ‘BBB+’ long-term counterparty credit and insurer financial strength ratings on Ahleia. “The outlook revision reflects Ahleia’s altered approach to investment and capital management, in our view, which we believe can reduce capital volatility and help the company maintain what we would regard as strong capital,” explained credit analyst Kevin Willis. S&P noted that the company’s capitalization was “restored to a rating strength in 2009 after management promptly repaid several bank loans out of current cash flow and reduced asset concentrations, although the bulk of the portfolio remains heavily invested in equity. The ratings also reflect Ahleia’s strong technical earnings. In 2008, Ahleia demonstrated a strong, market-leading underwriting performance, reflected in a net combined ratio of 55 percent compared with 72 percent in 2007. This improvement, which continued in 2009, stemmed mainly from a decline in the net loss ratio and an increase in commissions on reinsurance business, demonstrating the strong performance of the company’s reinsurers. In addition, the company has maintained strong liquidity. Liquid investments as of Sept. 30, 2009, covered net technical reserves 4.4x, slightly down from 4.6x in December 2008 and 6.5x in December 2007. Willis added: “The outlook is stable because we believe that Ahleia will likely maintain strong capitalization and reduce the volatility inherent in its investment portfolio. It also reflects the recovery of capital adequacy, in our view.” Ahleia’s arithmetical capital adequacy is sensitive to asset-value volatility, but we believe it is fundamentally strong. In conclusion S&P said it believes that Ahleia “will likely continue to develop its good competitive position in Kuwait, but remain focused on commercial and life risks. Underwriting performance should remain strong, and the net combined ratio should remain very profitable.”

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” and assigned an NR -5 (Not Formally Followed) to the FSR and an “nr” to the ICR of Generali Versicherung Aktiengesellschaft and Generali Lebensversicherung Aktiengesellschaft, following their merger into Volksfuersorge Deutsche Sachversicherung Aktiengesellschaft and Volksfuersorge Deutsche Lebenversicherung Aktiengesellschaft, respectively. Volksfuersorge Deutsche Sachversicherung Aktiengesellschaft was renamed Generali Versicherung Aktiengesellschaft, and Volksfuersorge Deutsche Lebensversicherung Aktiengesellschaft was renamed Generali Lebensversicherung Aktiengesellschaft. These renamed entities currently have an FSR of ‘A+’ (Superior) and an ICR of “aa-“. All companies are domiciled in Germany.

A.M. Best Co. has upgraded the issuer credit rating to “a+” from “a” and affirmed the financial strength rating of A (Excellent) of Toronto-based GCAN Insurance Company with stable outlooks. The rating actions reflect GCAN’s “excellent capitalization, solid underwriting and operating performance and consistently favorable reserve development,” said Best. The company’s “five-year average pre-tax returns on revenue and equity have been excellent. Capital appreciation has been solid, with additions for five consecutive years from a consistent stream of net investment income and favorable underwriting results. The ratings also reflect GCAN’s ability to consistently outperform the industry composite from an operating perspective, due to its strict underwriting guidelines and conservative investment policy.” However the company’s “pursuit of growth and associated execution risk upon entering new commercial lines of business, its dependence on reinsurance and continued soft market conditions in Canada,” should be considered as offsetting factors. In response, GCAN has reduced its reinsurance dependence by retaining more business and continuing to closely monitor appropriate retention levels and prudent underwriting guidelines. However, Best said it believes the company is well positioned to withstand existing soft market conditions based on management’s historically conservative focus on profitability.”