Assigns 'A-' Rtg to Folksamerica Reinsurance Co.NEW YORK--(BUSINESS WIRE)--Standard & Poor's-- Nov. 15, 1999--Standard & Poor's today assigned its single-'A'-minus counterparty credit and insurer financial strength ratings to Folksamerica Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Co. The outlook is stable. Folksamerica Reinsurance is a subsidiary of White Mountains White Mountains, part of the Appalachian system, N N.H. and SW Maine, rising to 6,288 ft (1,917 m) at Mt. Washington in the Presidential Range and to 5,249 ft (1,600 m) at Mt. Lafayette in the Franconia Mountains. Crawford Notch separates these two main groups. Holdings Inc. Standard & Poor's considers Folksamerica to be a strategically important subsidiary of White Mountains. Additional consideration was given to Folksamerica's extremely strong capitalization, its good operating performance, and its growing business position. Offsetting these strengths are the company's adverse claims development and integration risk from acquisitions, which can add volatility to earnings and capital strength. Major rating factors: -- Extremely strong capitalization: Folksamerica's capital adequacy score of 183% is considered extremely strong, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Standard & Poor's capital adequacy model. Standard & Poor's believes that the company will maintain extremely strong capitalization given its risk portfolio diversification Portfolio diversification Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country). and investment strategies. -- Good operating performance: Folksamerica's earnings adequacy ratio of 153% is considered good, according to Standard & Poor's earnings adequacy model. Statutory return on revenues also have been good, at 10%. Standard & Poor's believes that the company will continue to produce good operating results by maintaining its 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. protocols and steady investment income. -- Growing business position: Folksamerica is the 10th-largest broker market reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. in the U.S. based on surplus. Standard & Poor's expects to see the company continue to expand its business position in the industry through acquisitions and internally generated growth. -- Adverse claims development: Folksamerica has experienced consistent adverse claims development in the past five years relating principally to acquired reserve portfolios. The company has taken some precautions precautions Infectious disease The constellation of activities intended to minimize exposure to an infectious agent; precautions imply that the isolation of an infected Pt is optional, but not mandatory. in its acquisitions to partially mitigate the adverse claims development from acquired liabilities such as asbestos and environmental exposures, and, more recently, inadequate pricing of acquired business. Given Folksamerica's recent history and its acquisition growth strategy, Standard & Poor's expects future reserve strengthenings will somewhat dampen operating performance. -- Integration risk from acquisitions: The company has grown dramatically in the past several years through the acquisitions of Christiania Christiania: see Oslo, Norway. General Insurance Corp. in 1996, Great Lakes Great Lakes, group of five freshwater lakes, central North America, creating a natural border between the United States and Canada and forming the largest body of freshwater in the world, with a combined surface area of c.95,000 sq mi (246,050 sq km). American Reinsurance Co. in 1997, and USF USF University of South Florida USF Universal Service Fund (often part of phone bill in US) USF University of San Francisco USF University of Sioux Falls USF University of St. Re Insurance Co. in 1999. Folksamerica has integrated selected lines of business and customers from each acquisition, however, it is unclear if future acquisitions will run as well as they have in the past for the company. The company operates in lines of insurance/reinsurance that may be subject to liability claims related to the Year 2000 computer problem. At the present time, this risk is not explicitly factored into company's rating due to uncertainties about the frequency, severity, and legal treatment of claims that may be filed. It is possible that costs related to Year 2000 liability could affect the insurer's earnings over the next few years. Folksamerica Reinsurance Co. is a Security Circle insurer, which means that it voluntarily underwent Standard & Poor's most comprehensive analysis and was assigned a rating in one of the top four categories for financial security. OUTLOOK: STABLE Standard & Poor's believes that for 2000-2001, Folksamerica will generate good earnings, as evidenced by an earnings adequacy ratio of more than 150%. Underwriting results will be acceptable, with combined ratios in the 105%-110% range. Capitalization should remain extremely strong, with a capital adequacy ratio Capital adequacy ratio (CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR)[], is a ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss. of more than 180%. Net premiums should experience flat or little growth, Standard & Poor's said. -- CreditWire |
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