Best Affirms FSR for Sirius

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and the issuer credit rating of “a” of Sirius International Insurance Corporation (Sirius) (Sweden). The outlook on both ratings remains stable.

The ratings reflect implicit support from the ultimate parent company, White Mountains Insurance Group Ltd. Other rating factors include the maintenance of strong consolidated risk-adjusted capitalization despite the potential for adverse reserve developments from Scandinavian Re, the company’s excellent business profile and excellent earnings level.

Strong capitalization–A.M. Best expects Sirius’ risk-adjusted capitaliation to remain strong despite higher capital requirements due to an increased net retention from a change in the company’s reinsurance program to mainly quota share cover and from a SEK 1.8 billion (USD 268 million) stake in the unlisted affiliated life insurance group, Symetra Financial Corp. This is likely to be compensated by retaining earnings during 2005-2007, which will be directly transferred to a safety reserve allowed under Swedish Accounting Standards. A.M. Best remains concerned about the potential for reserve shortfalls at the run-off subsidiary, Scandinavian Re.

Excellent business profile–Sirius remains one of the leading reinsurers in Scandinavia, providing the reinsurance operations of White Mountains with a strong platform in Europe, particularly in short-tailed lines (mainly property). Net written premiums declined by 16% to SEK 4.8 billion (USD 724 million) in 2004 as unprofitable business was not renewed. For 2005, A.M. Best expects net premiums to increase by approximately 20% to SEK 5.8 billion (USD 873 million), mainly due to substantial growth of quota share reinsurance provided to various White Mountains subsidiaries to SEK 2.3 billion (USD 352 million) in 2005, compared with SEK 819 million (USD 126 million) in 2004. Sirius also intends to strengthen its business profile in aviation and has recently opened an underwriting office in Zurich for this purpose.

Excellent earnings level–A.M. Best expects net income to decline significantly in 2005, translating into a return on premiums of approximately 9%-10% but to remain within a range supportive of the current rating despite a deterioration of underwriting returns (combined ratio approximately 98% from 95.6%) due to the softening of premium rates, particularly in its property catastrophe line.

However, A.M. Best believes that prospective underwriting results could become more volatile as the company has not renewed its natural catastrophe excess of loss cover for 2005. The deterioration of underwriting results from Sirius’ existing book of business is likely to be compensated by the assumption of intra-group business from White Mountains, which has historically been profitable and is expected to achieve a combined ratio of approximately 92% in 2005.