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TEXT-S&P revises outlook on ACR to stable;affirms rating
November 29, 2012 / 9:46 AM / 5 years ago

TEXT-S&P revises outlook on ACR to stable;affirms rating

Nov 29 -

Overview

-- ACR’s capitalization is likely to remain moderately strong for the rating for the next 12-24 months.

-- We are revising the rating outlook on the Singapore-based insurer to stable from negative.

-- We are also affirming our ‘A-’ local currency long-term financial strength and issuer credit ratings.

-- We are also raising our ASEAN regional scale rating on ACR to ‘axAA’ from ‘axAA-'.

Rating Action

On Nov. 29, 2012, Standard & Poor’s Ratings Services revised the rating outlook on Singapore-based Asia Capital Reinsurance Group Pte. Ltd. (ACR) to stable from negative. Standard & Poor’s also affirmed its ‘A-’ local currency long-term financial strength and issuer credit ratings. At the same time, we raised our ASEAN regional scale rating on ACR to ‘axAA’ from ‘axAA-'.

Rationale

The outlook revision reflects our view that ACR’s capitalization is likely to remain moderately strong for the rating for the next 12-24 months. This is due to a capital injection by a strategic investor, ACR’s quota-share agreement with U.S.-based National Indemnity Co. (local currency AA+/Negative/--), and its greater use of retrocession to protect its capital base.

We do not expect loss claims related to the floods in Thailand in 2011 to increase significantly since we believe the company has received notification of all substantial claims. ACR has adjusted for the notified claims following consultations with independent loss adjustors. However, the possibility of loss development from the adjusted claims still exists. We have accounted for possible increases in these claims while assessing the company’s credit profile.

We expect ACR’s operating performance to recover to satisfactory levels, given the company’s de-risking exercise and the increase in reinsurance premium rates. The fluctuation in underwriting performance in recent years was mainly due to the impact of catastrophes in the region. In line with the rest of the reinsurance industry, ACR has tried to manage its exposure by tightening terms and conditions on its business, requesting more information on clients’ underlying exposures, and increasing retrocession protection. We expect these initiatives to lower the volatility in the company’s operating performance. Losses due to the floods in Thailand pushed the company’s combined ratio to 134.7% in the fiscal year ended March 31, 2012 (fiscal 2011).

In our opinion, ACR’s competitive position is satisfactory. Our view is despite the company’s short operating history and its significant business growth. ACR’s premium growth slowed in fiscal 2011 as it focused on managing claims, catastrophe exposure, and capital. The company has since shifted focus back to business growth. In our view, losses related to the Thai floods weakened clients’ confidence in ACR. However, we believe the impact is manageable and the company’s overall business profile is not significantly affected.

Outlook

The stable outlook reflects our view that ACR’s losses related to the floods in Thailand have stabilized and that the company has sufficient capital buffer to absorb further increases in claims. We believe the probability of ACR facing losses similar to those in late 2011 are low due to the tightening of terms and conditions on new business and higher protection of capital from retrocession.

We may lower the ratings if ACR’s capitalization deteriorates to a level that is not supportive of the rating and if its underwriting performance weakens due to significant underwriting losses. We may also lower the ratings if the company’s business profile deteriorates in the upcoming renewals due to declining confidence of clients in the company.

We may upgrade ACR if its capital is extremely strong, it achieves its business projections profitably, and its risk management is resilient to insurance events. We consider the possibility of an upgrade to be remote for the next two to three years.

Related Criteria And Research

-- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010

-- Interactive Ratings Methodology, April 22, 2009

-- Group Methodology, April 22, 2009

-- Summary Of Standard & Poor’s Enterprise Risk Management Evaluation Process For Insurers, Nov. 26, 2007

Ratings List

Ratings Affirmed; Outlook Action

To From

Asia Capital Reinsurance Group Pte Ltd.

Counterparty Credit Rating

Local Currency A-/Stable/-- A-/Negative/--

Financial Strength Rating

Local Currency A-/Stable/-- A-/Negative/--

Upgraded

To From

Asia Capital Reinsurance Group Pte Ltd.

ASEAN Rating Scale axAA/--/-- axAA-/--/--

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