Ratings Roundup: Glencoe (RenRe), Aegon, IGI

Standard & Poor’s Ratings Services has assigned its ‘A+’ counterparty credit and financial strength ratings to Glencoe Insurance Ltd., Stonington Insurance Co., Lantana Insurance Ltd., and Stonington Lloyd’s Insurance Co. (collectively referred to as RenRe Insurance) with stable outlooks. “The ratings on RenRe Insurance are based on the companies’ strategic importance to RenaissanceRe Holdings Ltd.,” explained credit analyst Taoufik Gharib. “The ratings, therefore, receive an uplift.” According to S&P’s criteria, the ratings are capped at one notch below the ratings assigned to core group members. “RenRe Insurance’s stand-alone characteristics include a good, but limited competitive position, relative to its sister company, Renaissance Reinsurance Ltd., because of its reliance on program business, as well as its strong risk-adjusted capitalization,” Gharib continued. Partially offsetting these strengths are RenRe Insurance’s volatile earnings resulting from its property and agriculture writings, as well as potential correlation risk with Renaissance Reinsurance Ltd. (AA-/Stable/–) that is primarily attributable to its property exposures, although reduced from historical levels. S&P added that it “views RenRe Insurance as strategically important to its parent, essentially because of its diversifying role and significance to RNR. At year-end 2008, it constituted about 25 percent of the parent’s shareholders’ equity and about 34 percent of the group’s gross premiums written. More importantly, RenRe Insurance generated 20 percent of RNR’s EBITDA. In addition, RenRe Insurance benefits from implicit support through cash contributions that totaled $383 million over the past five years and strong intergroup reinsurance protection. RNR has improved the competitive position of RenRe Insurance through the 2008 acquisitions of Agro National LLC, a managing general agent (MGA) of crop insurance, and Claims Management Services, a provider of claims administration and adjustment services. The two acquisitions have given RenRe Insurance greater oversight over its premium distribution while improving its claims handling capabilities. Recognizing that about half of its business model depends on MGAs, one of the company’s 2009 initiatives is to strengthen internally by hiring talented and experienced underwriters to further develop its primary insurance platform. We view the evolution from a majority rented model to a partially owned model as favorable to the company’s strategy, but it will remain dependent on program business in the medium term (two to three years).” In addition S&P said: “We expect RenRe Insurance to remain strategically important to RNR. Therefore, the ratings and outlook should move in tandem with those on RNR. We might lower the ratings or revise the outlook to negative on RenRe Insurance if the implicit support from RNR were to diminish, which we believe is unlikely.”

Standard & Poor’s Ratings Services has issued an announcement that its “ratings and outlook on Netherlands-based insurance holding company AEGON N.V. (AEGON; A-/Negative/A-2) and its core insurance operating subsidiaries (AA-/Negative) are unaffected by AEGON’s announcement of an equity issuance of up to €1 billion [$1.413 billion]. The equity issuance will support AEGON’s intention to repay by Dec. 1, 2009, up to €1 billion of capital that it received in the fourth quarter of 2008 from the Dutch State. AEGON also announced today its results for the second quarter, which were broadly in line with our forecasts. Underlying earnings before tax were €404 million [$570.8 million], although these were more than offset by €393 million [$555.2 million] of pretax impairments and a €385 million [$544 million] net loss on the sale of its Taiwanese life business, resulting in a net loss of €161 million [$227.5 million] for the quarter. The second quarter results, combined with financial market developments to-date in the third quarter, are broadly consistent with the assumptions underpinning our current ratings; namely that underlying earnings will be down by less than 20 percent in 2009 and investment-related losses will be less than €2 billion [$2.826 billion] this financial year. Execution of AEGON’s de-risking and capital preservation initiatives has been ahead of schedule, supporting its capital adequacy, while the equity issuance will improve capital quality. The negative outlook continues to reflect the risk that AEGON may fail to meet our expectations during a period of heightened risk and volatility and recognizes that the economic and financial market environment in AEGON’s core markets remains challenging.

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” to UK-based IGI Insurance Company, Ltd., which operates through an intercompany quota share reinsurance arrangement with Bermuda’s AmTrust International Insurance, Ltd. The outlook for both ratings is positive. Best said the “ratings reflect IGI’s solid capitalization, improved operating performance within its niche market segments and the benefits derived from its publicly traded parent, AmTrust Financial Services, Inc. (AFSI), including access to additional capital should it be needed to support IGI’s operations. Additionally, the ratings recognize the reinsurance support afforded through an intercompany quota share reinsurance agreement with AII, AFSI’s reinsurance subsidiary. Under the contract, AII reinsures 70 percent of IGI’s net written premiums and incurred losses.” However, Best noted that “IGI’s growth in both premium volumes and associated liabilities in recent years, the execution risk faced by management in achieving its business plans and the risk inherent in profitably growing the business amidst soft market conditions,” should be considered as offsetting factors “Despite these concerns, the rating outlook reflects the improved operating results within IGI’s market segments, ongoing access to capital and the company’s commitment to prudent underwriting through its proven business platform,” Best added. The ratings agency also, noted that on June 12, 2009 it had “affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-“AII, as well as the ICR of “bbb-” of AFSI. The outlook for all ratings is positive.”