Ratings Roundup: Infrassure, Africa Re, Ocaso

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Swiss-based Infrassure Ltd. and its affiliate, Infrassure Ltd., Vaduz, which is based in Liechtenstein. The outlook for all of the ratings remains stable. The ratings affirmation of Infrassure “reflects a recovery in the company’s risk-adjusted capitalization in line with A.M. Best’s expectations,” said the bulletin.The improvement was “due to significant earnings retention in 2009, although this factor was partially offset by higher capital requirements due to the company’s decision not to renew its reinsurance program.” In the future Best said it expects Infrassure to “maintain its risk-adjusted capitalization at a level at least comparable with the year-end 2009 position. The ratings of Infrassure Vaduz reflect the significant support provided by its parent in the form of a 90 percent quota share reinsurance. Infrassure Vaduz performs an essential role for Infrassure as its insurance operation in the European Union.” Best also indicated that it expects Infrassure’s operating performance” to remain strong following an excellent net income after tax of CHF 96.4 million [$92.5 million] in 2009, the highest profit in the company’s history. The result was due to an exceptional loss ratio of 36.5 percent against the backdrop of an absence of major losses in 2009, combined with a recovery in investment income following high unrealized losses. Prospectively, the net profit is likely to return to a more normalized range of between CHF 40 million to CHF 50 million [$38.4 to $48 million].” In Best’s view, the low loss ratio in 2009 and the five-year average loss ratio of 46.6 percent provide supporting evidence for its opinion that “Infrassure benefits from excellent underwriting skills and effective risk management tools. Infrassure is a leading specialist in engineering insurance and industrial property and enjoys a solid niche position in the sector. Based on this, the company is well positioned to grow in its niche, which still provides significant scope for further development. Infrassure will in particular benefit from the combination of specific engineering knowledge and insurance expertise in its underwriting function. In 2010, Infrassure’s gross premium written is likely to marginally increase, with growth increasing somewhat in subsequent years, as the company leverages its improved operational infrastructure.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Nigeria’s African Reinsurance Corporation, both with stable outlooks. The ratings reflect Africa Re’s “strong competitive position within its core African markets, robust operating performance and improving level of enterprise risk management,” Best explained. “Offsetting factors include a trend of deteriorating risk-adjusted capitalization. Africa Re’s 2009 premium income of $536 million is diversified throughout the group’s network of six regional African offices and its South African subsidiary. This arrangement has allowed Africa Re to maintain close contact with cedants throughout the continent of Africa and develop a very strong market position.” Best also noted that overall earnings of $44.3 million in 2009 “represented Africa Re’s most profitable year to date and were supported by a significantly improved underwriting result of $15.7 million. Improving underwriting results represent a change in trend from recent years, where investment results have been relied upon for overall profits.” Best said it considers that “risk-adjusted capitalization has deteriorated in each of the past two years, largely driven by increasing levels of premium income. Partially mitigating this concern is Africa Re’s intention to expand its adjusted capital base by $100 million before the end of 2011. Furthermore, ongoing implementation of an internal capital model is enhancing the company’s understanding of its capital requirements.”

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of “aa-” of Spanish insurer Ocaso, S.A. Seguros y Reaseguros, both with stable outlooks. The ratings reflect the company’s “superior risk-adjusted capitalization, excellent operating performance and strong business profile,” said Best. “A partially offsetting factor is the exposure to systemic risk ensuing from the current economic and financial situation in Spain. Ocaso’s risk-based capitalization remains superior, having benefited from significant profit retention over the last several years,” the bulletin continued. “Ocaso’s capitalization is further supported by the coverage of catastrophic events in Spain (reinsured with the governmental company Consorcio de Compensacion de Seguros) and by the prudent investment strategy, with investments mainly concentrated in fixed income securities (both government and high quality corporate).” In addition Best noted that Ocaso’s “overall profitability is strong, driven by the limited underwriting risk and low volatility of its funeral expenses portfolio. In non-life business, the combined ratio has historically been excellent, staying below 90 percent.” Best said it believes that it will remain at a similar level in 2010. “Total net profits amounted to €58.2 million ($83.4 million) in 2009.” Best explained that Ocaso continues to be “one of the leading Spanish providers of funeral expenses, which is the company’s main line of business. In recent years, Ocaso group has consolidated its strong market position in that segment, acquiring the funeral expenses portfolio from the Spanish subsidiaries of AXA (in 2007), Allianz (in 2008) and Zurich (in 2009). In 2009, the funeral expenses business contributed 43 percent to Ocaso’s gross written premiums (GWP), which increased to €802.4 million ($1.15 billion). On the other hand, Ocaso is endeavoring to diversify its insurance portfolio, also through enhanced cross-selling. Life business accounted for 13 percent of GWP in 2009, with life premiums increased by 7.5 percent year-on-year also benefiting from a better trend of surrenders than in 2008. Considering that 98 percent of Ocaso’s business originates in Spain, the company is an almost pure national insurer.” As a result Best indicated that “a natural consequence is that Ocaso is affected by the economic and financial situation in Spain. Should current conditions deteriorate, it is likely that the company’s business as well as the quality of its investments (which are primarily Spanish government bonds and corporate securities) could be negatively impacted.” Nevertheless, Best said it believes that, “even under stress test conditions, Ocaso maintains an excellent level of risk-adjusted capitalization, which benefits from the high capital base.