A.M. Best Downgrades Ratings of Associated Electric & Gas Insurance Services Limited; Removes From Under Review.OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength ratings to A- (Excellent) from A (Excellent) and issuer credit rating to "a-" from "a" of Associated Electric & Gas Insurance Services Limited (AEGIS) (Hamilton, Bermuda). Both ratings have been removed from under review with negative implications and assigned a stable outlook. These rating actions are due in part to the unexpected large decline in the company's surplus as of December 31, 2008, compared to year-end December 31, 2007. The ratings were placed under review with negative implications on April 3, 2009, following a significant decline in AEGIS' total capital at year-end 2008 due to a reported net loss that included significant investment related realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. and impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges, which produced a USD USD In currencies, this is the abbreviation for the U.S. Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 323.4 million or 30% erosion in policyholders' surplus in 2008. The rating downgrades are the result of AEGIS' weakened capitalization in 2008 and a deteriorating trend in its operating performance. In determining the company's overall risk-adjusted capitalization, A.M. Best considered a significant level of capital relief derived from the loss reserve adverse development contract (ADC (1) See A/D converter. (2) (Apple Display Connector) A peripheral connector from Apple that combines digital video display, USB and power in one cable. ) provided by National Indemnity Company (Omaha, NE) covering workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. , excess casualty, pollution and directors & officers portfolios in force at December 31, 2008. The ADC contract resulted in improvement in its risk-adjusted capitalization--as measured by Best's Capital Adequacy Ratio--and contributed to the assignment of a stable outlook. A.M. Best is concerned that the continuing turmoil in the financial markets could further erode Erode (ĕrōd`), city (1991 urban agglomeration pop. 361,755), Tamil Nadu state, S India, on the Kaveri River. The city is located in a cotton-growing region, and its industries include cotton ginning and the manufacture of transport equipment. AEGIS' capital position and negatively impact its earnings in 2009. However, through March 31, 2009, the company's overall investment portfolio has not recognized investment losses despite its 7% equity investment allocation in fund of funds Fund of Funds A mutual fund that invests in other mutual funds. Notes: For example, an investor would select a general risk profile and the fund-of-funds manager would pick underlying investments from a range of products managed by external managers. hedge funds hedge fund, in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" . AEGIS' overall equity allocation is down from an equity allocation of 22.3% a year earlier. The rating actions also are partially resulting from AEGIS' continued erratic operating performance, as it has registered a combined ratio in excess of 100% for more than five years in a row, with a five-year combined ratio of more than 110% thru December 31, 2008. AEGIS has established a number of forward looking initiatives that it expects will mitigate recent operating results. Management also has implemented a more robust and enhanced risk management process. A.M. Best will continue to monitor AEGIS' ratings to assess its sustainability to weather any additional negative effects from the continuing turmoil in the financial markets as well as underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. risks and any other unexpected events. A.M. Best remains the leading rating agency of captive insurers rating a wide variety of more than 200 captives in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and throughout the world. For current Best's Credit Ratings and independent data on the captive and alternative insurance market, please visit www.ambest.com/captive. The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com. |
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