Ratings Roundup: Gulf Re, Toa Re, MS Frontier

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of the United Arab Emirates-based Gulf Reinsurance Limited with stable outlooks. “The ratings reflect the company’s excellent projected risk-adjusted capitalization, good projected financial performance and developing business profile,” said Best. “A partially offsetting factor is the execution risk of its revised strategic business plan.” Best added that in its opinion, Gulf Re’s prospective risk-adjusted capitalization is expected to remain strong, following its revised strategic business plan with lower than expected business volumes. Gulf Re’s initial capital of $200 million has been provided 50 percent each by Gulf Investment Corporation (GIC) and Arch Capital Group Ltd, (ACGL).” Best also said it “believes the company will fully capitalize all operating profits up to at least 2013, which will be sufficient to maintain strong risk-adjusted capitalization as it expands its business during the start-up phase. Additionally, a further $200 million of capital is available at the holding company and can be transferred to Gulf Re if required, enhancing the company’s capital flexibility.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit rating (ICR) of “aa-” of Japan’s Toa Reinsurance Company, Limited, both with stable outlooks. Best also affirmed the FSR of ‘A’ (Excellent) and the ICR of “a” of The Toa Reinsurance Company of America (TRA), which is headquartered in Morristown, N.J. The outlook for both ratings is stable. Best said the “ratings reflect Toa Re’s improved underwriting performance, more diversified sources of premium income and superior risk-adjusted capitalization. Toa Re’s underwriting performance improved during the three-year period of the company’s business plan (PROCEED 2008), which was completed as at March 31, 2009. Over the course of PROCEED 2008, Toa Re focused on improving its profitability through catastrophe and peak risk management, leveling out regional exposure, improving the quality of its investment portfolio, diversifying revenue sources and maintaining a sustainable premium growth. The company successfully achieved the numerical targets as stated in PROCEED 2008. Toa Re has a new three-year business plan, Crescendo 2011, in which the company will continue to focus on underwriting profitability, pursuing revenue source diversification and steady premium growth.” In addition Best noted that “Toa Re’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remains superior. Although the recent financial market turmoil had led to a decline in its risk-adjusted capitalization, the buffer to support Toa’s Re current ratings still exists.” However the rating agency indicated that “offsetting these positive factors is the shrinking insurance market in Japan and the losses from equity investments. The insurance market in Japan has been shrinking over the past decade. Although Toa Re has directed its resources toward finding new revenue sources, it was inevitably affected given that the major premium sources of its business were derived from Japan. The current sharp decline in the return from investment markets globally has negatively impacted Toa Re’s risk-based capitalization. Toa Re’s adjusted capital and surplus decreased by 8 percent to JPY 238 billion ($2.6 billion) as at December 31, 2008, from JPY 260 billion ($ 2.9 billion) as at March 31, 2008. “Best added that the “rating affirmation of TRA reflects its continued excellent underwriting performance in 2008 and the first quarter of 2009, partially offset by net realized capital losses. TRA’s risk-adjusted capital position remained strong despite negative changes in unrealized capital losses. TRA is a profitable investment for Toa Re, providing strategic expansion and portfolio diversification.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Bermuda-based MS Frontier Reinsurance Ltd. with stable outlooks. Best noted: “MS Frontier is a wholly owned subsidiary of Mitsui Sumitomo Insurance Company, Limited (MSI) (Tokyo, Japan), which is the main trading subsidiary of Mitsui Sumitomo Insurance Group Holdings, Inc. (MSIG) (Tokyo, Japan). MS Frontier’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remains strong. The ratings reflect MS Frontier’s continued excellent underwriting performance. The company’s losses from Hurricane Ike in 2008 were well managed and below market average.” Best also indicated that “MS Frontier uses the global recognition and balance sheet strength of MSI for competitive advantage. MS Frontier’s ratings further reflect the significant financial support and reinsurance commitment provided by MSI. Under a credit support agreement, MSI agrees to own and hold all of MS Frontier’s outstanding shares of stock, maintain a positive tangible net worth and unconditionally and irrevocably guarantee all of MS Frontier’s obligations. Furthermore, both companies have a facultative obligatory reinsurance facility under which MSI agrees to reinsure all new exposures when MS Frontier’s annual aggregate probable maximum retained loss amount, with a specified non-exceedance probability, exceeds a specific level of total adjusted stockholders’ equity. This reinsurance facility has been unutilized since 2006. MS Frontier continues to be one of MSIG’s strategic insurance vehicles designed to achieve the group’s geographical portfolio optimization, risk diversification and overseas business expansion. In 2009, MS Frontier set up a branch office in Zurich to promote closer relationships with its clients in Europe and explore developing markets in Eastern Europe, Middle East and Africa. In 2008, the company set up a wholly owned subsidiary in Singapore to provide peril modeling technical support and market research to all members of MSIG.”