Ratings Recap: Lonpac, Tenet, Zurich (Notes), Generali (Notes)

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Malaysia’s Lonpac Insurance Bhd, both with stable outlooks. “The ratings reflect Lonpac’s adequate capitalization and its ability to manage profitable growth,” said Best. “The ratings also recognize the company’s wide distribution platform and sound spread of business composition.” Best also noted that “Lonpac has a strong underwriting profitability with a five-year average combined ratio at approximately 78 percent. As at fiscal year 2008, the company’s net underwriting income was MYR 75 million, translating into a combined ratio of 77.8 percent in 2008, compared to 78.5 percent in 2007. Favorable underwriting results coupled with stable investment earnings continued to reinforce Lonpac’s return on equity and assets, which increased from 17.6 percent and 8.9 percent, respectively, in 2004 to 36.0 percent and 14.8 percent in 2008. Lonpac offers a broad spectrum of general insurance products, which mainly consists of short-tailed classes. Fire and motor are the company’s key business lines, representing about 33.2 percent and 31.5 percent, respectively, of the company’s gross written premiums.” I addition Best said the company “has a broad distribution platform. The agency force, brokers and bancassurance channels contributed to approximately 41 percent, 11 percent and 27 percent, respectively, of the company’s gross premiums in 2008. In addition to wide production sources, Lonpac has maintained a high policy renewal rate and continues to improve its efficiency and productivity.

A.M. Best Co. has revised the outlook to negative from stable, but has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Singapore’s Tenet Insurance Company Ltd. Best noted that the ratings acknowledge Tenet’s “adequate capitalization level, prudent net premium leverage and sound liquidity of its invested assets;” they also “recognize the initiative taken by the company to ensure its pricing adequacy.” Best explained, however, that the revised outlook reflects its concerns “over the underwriting profitability of the motor and workers’ compensation lines of business.” In addition Best pointed out that “Tenet recorded an overall operating loss of SGD 4.3 million [US$ 3.02 million] in 2008, compared to a net income of SGD 6.7 million [US$4.712 million] in 2007 due to unfavorable underwriting results and investment losses. The operating deficit along with the dividend payment greatly exacerbated the company’s risk-based capitalization, as measured by Best’s Capital Adequacy Ratio in 2008, although it is still commensurate with the assigned ratings. A decline in surplus also led to an increase in Tenet’s net premium leverage from 0.34 times in 2007 to 0.66 times in 2008.” Best did state that “Tenet’s liquidity position remained satisfactory as a result of the allocation of more than 60 percent of assets in cash and fixed income instruments. The company’s bond portfolio is mainly composed of the instruments that are secured or issued by either government-linked companies or blue chip listed companies in Singapore, although some of them are non-rated. Nonetheless, unrealized losses in stocks dragged down the net investment yield to -1.6 percent in 2008 from 5.6 percent in 2007; however, the recent market recovery will improve the position of Tenet’s fair value adjustment reserves. Offsetting these positive attributes is Tenet’s adverse underwriting experience in its key business lines, motor and workers’ compensation, which resulted in an unfavorable underwriting result in 2008. Motor and workers’ compensation loss ratios surged from 25.3 percent and 30.0 percent in 2007 to 92.2 percent and 149.1 percent in 2008, respectively. Overall, the company’s net loss ratio increased to 61.0 percent from 27.4 percent in 2007, while its net claims paid ratio was maintained at approximately 38 percent.”

A.M. Best Co. has assigned a debt rating of “a” to the $750 million four year senior fixed rate notes issued by Zurich Finance (Luxembourg) S.A. and guaranteed by Zurich Insurance Company Ltd. under ZIC’s €10 billion [$14.62 billion] medium-term note (EMTN) programme. The assigned outlook is stable. The notes are due to mature in 2013 and bear a fixed interest rate of 3.25 percent, payable annually in arrears, and the financial and debt leverage ratios remain within Best’s tolerance levels.

A.M. Best Co. has assigned a debt rating of “a+” to the €1.75 billion [$2.556 billion] 5.125 percent senior unsecured notes due to mature on September 16, 2024 issued by Italy’s Assicurazioni Generali S.p.A. The notes were issued under Generali’s Euro medium-term notes program, and the assigned outlook is stable.”These notes are intended to refinance the senior debt maturing on 20 July 2010, which amounts to €1.75 billion on a 6.15 percent coupon,” Best explained. “The resulting higher financial leverage is expected to be reduced and in line with the current rating after July 2010, following the repayment of the maturing senior debt.” Best added that it “believes in the medium term, the issued bond contributes to strengthen Generali’s ability to cover interest expenses for its financial debt, benefiting from the lower level of the coupon.”