Ratings Roundup: Dongbu, Afianzadora, BNY Trade, Unive Her

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of South Korea’s Dongbu Insurance Company, Ltd., both with stable outlooks. Best said the ratings reflect Dongbu’s “strong capitalization and favorable operating performance. Due to its strong operating profitability, Dongbu has accumulated its retained earnings stably over the past five years. As at the end of fiscal year 2009, Dongbu’s adjusted capital and surplus (including catastrophe reserves) stood at around KRW 1.6 trillion [$140.1 million], which is the second largest in the industry. Dongbu’s local solvency margin ratio improved to 226 percent in fiscal year 2009 from 193 percent in the previous year, due to the favorable investment market recovery. As Dongbu decided to reflect revaluation gains on land in fiscal year 2010 due to the introduction of International Financial Reporting Standards (IFRS), the company’s capitalization has shown further improvement; Dongbu reported around KRW 368 billion [$32.2 million] of revaluation gains.” Best also noted that, “although Dongbu experienced deterioration in its loss ratio, its bottom line profitability remained strong, attributed to its lower expense ratio and favorable investment income ratio. Dongbu’s combined ratio and operating ratio stood at 100 percent and 93 percent, respectively, in fiscal year 2009.” Best indicated that it “expects that Dongbu will maintain its current level of operating profitability. As offsetting factors best cited the “unfavorable loss trend in the motor business line and the weakening of a competitive advantage in expense controls.” The rating agency noted that in the past, Dongbu has “maintained a low expense ratio attributed to the lower personnel expense with high operation efficiency. Dongbu’s expense ratio was around three percentage points lower than its peers in a five-year average. However, as Dongbu’s sales costs are in an upward trend to support rapid top-line growth and its competitors attempt to reduce their personnel expenses through the abolishment of a progressive severance payment system, the expense ratio gap between Dongbu and its peers has begun to narrow.”

A.M. Best Co. has affirmed the financial strength ratings of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Mexico’s Afianzadora Insurgentes, S.A. de C.V. (AISA) and Afianzadora Aserta, S.A. de C.V. (Aserta). The outlook for all of the ratings is stable. The rating actions reflect “AISA and Aserta’s solid risk-adjusted capitalization and significant market share of the Mexican surety insurance segment,” Best explained. The ratings also recognize both companies’ affiliation as members of the financial group, Grupo Financiero Aserta, S.A. de C.V. (Grupo Financiero Aserta). Best noted that “AISA is one of the leading surety insurers in Mexico, and together with Aserta, the group is the largest bonding and surety writer in the country. As a result of AISA’s affiliation with Aserta, management has implemented several initiatives including tighter underwriting controls and more efficient collection procedures in tandem with newly established risk selection guidelines. In addition, both AISA and Aserta continue to maintain more than adequate risk-adjusted capitalization for their current business profiles. Grupo Financiero Aserta is the first financial group in Mexico comprised of only surety companies, and management’s planned operating strategy is to write specific business segments within each company in order to optimize the group’s capital utilization.” As offsetting factors Best cited the companies’ “overall earnings volatility in recent years, somewhat elevated expense structure and potential limited financial flexibility as a result of their private ownership structure.”

A.M. Best Co. has upgraded the financial strength rating to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit rating to “a” from “a-“of Bermuda-based BNY Trade Insurance Ltd. , and has revised the outlook for both ratings to stable from positive. The ratings reflect BNY Trade’s “strong capitalization, consistently positive operating results, conservative operating strategy and robust enterprise risk management (ERM) framework as it follows its parent, The Bank of New York Mellon Corporation’s ERM practices,” Best explained. As offsetting factors, Best noted the “limited market scope, product mix and dependence on third parties for processing, servicing and administration. An additional offsetting rating factor is BNY Trade’s large (gross) underwriting exposures as it offers high gross insurance limits and insures excess bankers’ professional liabilities with substantial insured values.” In addition Best indicated that the ratings recognize BNY Trade’s “excellent business position, as it has close ties to and is a wholly owned subsidiary of BNY Mellon, a leading global financial services company. BNY Trade provides comprehensive reinsurance/insurance coverages/products. The company’s reinsurance is placed with the world’s significant providers, and it benefits from BNY Mellon’s significant financial resources, extensive risk mitigation and the safety programs implemented throughout the organization. As BNY Trade fully cedes assumed risk under primary bankers’ professional coverages and an all risk property policy to the commercial market, the company’s exposure to net underwriting losses is minimal. BNY Trade’s projected operating results indicate favorable returns, and its surplus base of over $90 million is more than adequate to support the company’s asset and credit risk exposure. While BNY Trade’s excess bankers’ professional program and the property coverages written offer significant insured values (considering the high coverage limits offered), the net impact could be burdensome. Nevertheless, A.M. Best recognizes the low probability of such events.”

A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Onderlinge Verzekering Maatschappij Univé Her u.a. (Univé Her) and Onderlinge Verzekering Maatschappij Univé Stormher u.a. (Univé Stormher). Both companies are domiciled in the Netherlands. The outlook for all ratings is stable. The ratings reflect each company’s “excellent risk-adjusted capitalization, good operating record and specialist business profile,” said Best. “However, both Univé Her and Univé Stormher are small in absolute terms and have a client base that is restricted to the 25 Dutch mutual property insurers that own and govern the two companies. As a consequence, geographical and business line diversification is limited.” Best also pointed out that “in addition to a solid surplus developed through retention of earnings, Univé Her has access to a members’ account, which provides €15.4 million [$20.3 Million] of capital that can be utilized if the company experiences financial difficulties. Univé Stormher has a €19.4 million |$25.58 million] catastrophe equalization reserve that can be utilized if the company experiences large catastrophe losses. Each company benefits from a comprehensive property per risk/event XL and catastrophe reinsurance program, which is well spread across a panel of high quality reinsurers. Univé Her has a good track record of profitability with an average five-year combined ratio of 85 percent. The company is expected to achieve a combined ratio of between 95 percent and 100 percent in 2010, an improvement on the 134 percent reported in 2009. The 2009 result was affected by a number of exceptional large single risk losses that, partly due to limited portfolio diversification, had a material impact on normally excellent underwriting performance. As a catastrophe reinsurer with a small client base, Univé Stormher’s results vary significantly depending on large loss experience. The company is expected to report a high combined ratio of between 170 percent and 180 percent in 2010, due to losses relating to a local Dutch windstorm, which compares to an average combined ratio of 29 percent over the last five years (excluding contributions to the catastrophe equalization reserve). Univé Her and Univé Stormher have a specialist business profile as providers of property excess of loss (Univé Her) and catastrophe (Univé Stormher) reinsurance protection to 25 mutual property insurers operating under the Univé brand. Although small, the companies’ client base is loyal and neither company has failed to renew an account since inception (with the exception of mergers between mutuals). The companies have an excellent understanding of their customers’ business and provide underwriting and claims support to their clients.