A.M. Best Downgrades Ratings of Electro Re S.A.OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating (FSR (Free System Resource) In Windows 3.x, the amount of unused memory in various 64K blocks reserved for managing current applications. Every open window takes some space in this area. See Windows memory limitation. ) to B+ (Good) from B++ (Good) and issuer credit rating (ICR) to "bbb-" from "bbb" of Electro Re S.A. (Luxembourg), the reinsurance subsidiary of Alcatel-Lucent (France), a leading telecommunication equipment manufacturer. The outlook on both ratings remains negative. The downgrade and the negative outlook reflect the uncertainty about Electro Re's reallocation of reserves from equalisation reserves in the next two years which are likely to negatively impact prospective earnings, under Luxembourg GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). . Furthermore, the ratings reflect Alcatel-Lucent's difficulties in executing the merger that started at the end of 2006. A.M. Best believes that there is a significant degree of uncertainty regarding further reserve reallocation from equalisation reserves and its timescale and, therefore, a volatile operating performance is expected to continue in the next two years, under Luxembourg GAAP. A.M. Best notes, however, that these movements are earnings neutral under International Financial Reporting Standards International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). (IFRS IFRS International Financial Reporting Standard(s) IFRS Inter Frame Relay Service IFRS Indiana Facilities Registry System ). In 2007, the sale of the space business and subsequent reserve releases more than offset reserve strengthening of certain lines and increases in incurred but not reported Incurred but not reported (IBNR) is a term in common use in general insurance. When a policy of general insurance is written it will typically cover a 12 month period from inception of the policy. reserves (IBNR IBNR Incurred But Not Reported IBNR Interesting But Not Relevant ) leading to a healthy loss ratio of 76.9%. The expense ratio declined to a negative 24.7% due to the negative net written premiums booked in 2007 following the sale of the space business via a retrocession RETROCESSION, civil law. When the assignee of heritable rights conveys his rights back to the cedent, it is called a retrocession. Erskine, Prin. B. 3, t. 5, n. 1; Dict. do Jur. h.t. agreement. In A.M. Best's view, Electro Re's prospective business volume is likely to be increased by premium deriving from First Beacon Insurance Company (an ex-Lucent captive). Although expected to be limited in 2008, premium growth in 2009 is likely to represent approximately 20% of the EUR EUR In currencies, this is the abbreviation for the Euro. 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. 41.7 million in 2007. In A.M. Best's view, Electro Re's risk-adjusted capitalisation has slightly improved in 2007 due to the sale of the space business, reflecting Alcatel-Lucent's divestiture of the referred business and the high unrealised gains on investments, in spite of an increase in net reserves due to both a reallocation of incurred but not reported (IBNR) reserves and a reserves strengthening of certain lines. Any adverse operating performance is expected to impact negatively the company's risk-based capital. For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings. 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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