Ratings Roundup: Validus (Notes), South China

A.M. Best Co. has assigned a debt rating of “bbb-” to the recently issued $250 million 8.875 percent senior unsecured notes, due 2040 of Bermuda’s Validus Holdings, Ltd., and has assigned them a stable outlook. Best noted that the “proceeds from the debt offering will be used for general corporate purposes, which may include the repurchase of outstanding capital stock, dividends to shareholders and/or potential acquisitions. Validus Holdings’ debt-to-adjusted capital ratio and fixed charge coverage remain within the range expected for the assigned rating.” Validus Holdings is a provider of reinsurance and insurance, conducting its operations worldwide through two wholly owned subsidiaries, Validus Reinsurance, Ltd. (Validus Re) and Talbot Holdings Ltd. (Talbot). Validus Re is a Bermuda-based reinsurer focused on short-tail lines of reinsurance, while Talbot is the Bermuda parent of the specialty insurance group primarily operating within the Lloyd’s insurance market through Syndicate 1183.

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of Taiwan’s South China Insurance Co., Ltd, both with stable outlooks. The ratings reflect South China Insurance’s “well capitalized position, stable investment risk profile and extensive distribution network,” said Best. It also recognizes the company’s “expense control initiative in its key motor portfolio.” South China Insurance’s risk-based capitalization, as demonstrated by Best’s Capital Adequacy Ratio (BCAR), is commensurate with its current ratings. The company’s capital position “reflects its manageable net premium leverage ratio and comprehensive reinsurance support,” best continued. “To protect its capital from undue exposures to catastrophic perils, South China Insurance has decided to increase the upper protection limit of its property catastrophe excess of loss treaty in 2010.” In Best’s view, the company’s capital level “will be able to support its anticipated business growth while the growth of its operating surplus will remain moderate in the near term.” Best also explained that South China Insurance “utilizes a multiple distribution platform to market its products. For the nine months period to September 2009, business derived from direct sales represented 37 percent of total premium, followed by brokers (21 percent) and car dealers (15 percent). South China Insurance, a wholly owned subsidiary of Hua Nan Financial Holdings Co. Ltd, is supported by its banking affiliate primarily in distributing its personal lines products.” The company also “maintains good liquidity relative to risks underwritten. As at September 30, 2009, cash and fixed income securities accounted for 77 percent of the invested assets.” Best anticipates that the company’s existing investment strategy will be maintained over the near term. However, South China Insurance’s limited premium growth under the current competitive conditions in the local market,” is a partially offsetting factor. “Continued rate deregulation in motor and fire businesses (total accounted for more than 70 percent of the company’s book for nine months to September 2009) could lead to a subdued premium growth and higher loss ratios going forward.” In conclusion best said that, although it believes South China Insurance “has an experienced underwriting team in place, its underwriting margin will remain under pressure.”