Best Affirms Gen Re’s ‘A++’ Ratings

A.M. Best Co. has affirmed the financial strength ratings (FSR) of “A++” (Superior) and the issuer credit ratings (ICR) of “aa+” for the Delaware-based General Re Group. Best said the ratings apply to General Reinsurance Corp. (Delaware) and its core P/C and life reinsurance and insurance subsidiaries operating both in the United States and internationally (See also related article on Cologne Re in International).

Best also affirmed the ICR of “aa+”, the senior debt rating of “aa+” and the commercial paper rating of AMB-1+ of the group’s direct parent, General Re Corporation (Connecticut). The outlook for all ratings is stable.

“The ratings consider Gen Re’s strengthened balance sheet, favorable underwriting results on business written since 2001, strong leadership position in the global reinsurance marketplace and adherence to stringent underwriting discipline,” Best noted. Best stressed that “Gen Re’s ratings also reflect both the implicit and explicit financial support provided by the group’s ultimate parent, Berkshire Hathaway Inc. (Berkshire Hathaway) (Nebraska). These factors in turn contribute to Gen Re’s strong prospective earnings capability.”

More specifically, Best explained: “Gen Re’s risk-adjusted capitalization has improved considerably over the past few years, which is supported by significant reinsurance protections provided by affiliates, National Indemnity Company and Columbia Insurance Company, both rated ‘A++’ (Superior).

“Effective January 1, 2005, these protections include a loss portfolio reinsurance contract and a quota share reinsurance contract. The loss portfolio provides for a 50 percent reinsurance cover on existing net losses as of December 31, 2004 with an aggregate limit of $11.2 billion.

“The quota share contract provides for a 50 percent reinsurance cover on net losses from business in force on or after January 1, 2005.”

Assessing Gen Re’s global position, Best noted that the Company “has historically maintained a leadership position in the global reinsurance marketplace, ranking among the top four reinsurers worldwide. Following the events of September 11, 2001, the group embraced a more rigorous underwriting stance, eschewing unprofitable accounts and adhering to tighter underwriting standards and better management [Berkshire’s Warren Buffett fired Gen Re’s management and brought in a new team] of aggregate exposure.

“While this has resulted in lower gross premium volume, the overall quality of its retained underwriting portfolio has significantly improved in terms of pricing, contract terms and conditions and aggregation of risk exposure. This, in concert with generally improved conditions in the U.S. and international reinsurance markets, has contributed to significantly improved accident year underwriting trends for the most recent accident years.

“Furthermore, Gen Re’s prudent investment strategy has tempered any significant permanent write-downs in its investment holdings. Given its sizable base of invested assets, its strengthened reserve position, availability of quota share and loss portfolio reinsurance to absorb any unanticipated losses and improved quality of current underwriting earnings,” Best said it “expects favorable trends exhibited in its underwriting and overall performance to be sustainable and thereby serve to augment its strengthened capital base.”

However, Best also indicated that the “competitive pressures in the property/casualty reinsurance segment,” constitute partially offsetting factors. Given Gen Re’s conservative underwriting guidelines, the situation “may continue to compress the group’s gross writings and further pressure its overall expense position,” said Best.

“Moreover,” the report continued, “while Gen Re has strengthened reserves over the past four years, the potential for further leakage exists, given the recent material loss emergence in the primary insurance sector relative to long-tail casualty classes of business and increased litigation activity relative to latent liability claims.”

Best concluded that “despite these concerns,” it “believes that Gen Re’s financial flexibility is greatly enhanced by the explicit commitment and superior financial strength of Berkshire Hathaway.”

Best summarized its rating actions on Gen Re as follows:
The FSRs of A++ (Superior) and the ICRs of “aa+” have been affirmed for General Re Group and its following core property/casualty and life reinsurance and insurance companies:
— General Reinsurance Corporation
— General Star Indemnity Company
— General Star National Insurance Company
— Genesis Indemnity Insurance Company
— Genesis Insurance Company
— General Reinsurance UK Limited
— Kolnische Ruckversicherungs-Gesellschaft AG (Cologne Re)
— General Reinsurance Australia Ltd
— General Reinsurance Africa Ltd.
— General Reinsurance Life UK Limited
— General Reinsurance Life Australia Ltd.

The ICR of “aa+” has been affirmed for General Re Corporation.

The following debt rating has been affirmed:
General Re Corporation– “aa+” on $150 million 9 percent senior unsecured debentures, due 2009

The following rating has been affirmed:
General Re Corporation–
AMB-1+ on commercial paper
At this time, the FSR of A++ (Superior) and the ICR of “aa+” of Faraday Reinsurance Co. Limited [Gen Re’s Lloyd’s operations] are unchanged. A.M. Best’s annual review of the company is on-going, and A.M. Best expects to conclude the review within the next two months.