Best Says SCOR Ratings Helped By Converium Buy

A.M. Best Co. said Paris-based SCOR and subsidiaries have been helped by the firm's acquisition of reinsurer Converium and the SCOR financial strength rating of A minus (Excellent) and the issuer credit rating of “a minus” have been affirmed.

The Oldwick, N.J.-based rating firm also affirmed the senior debt and subordinated debt either issued or guaranteed by SCOR. The outlook remains stable for all ratings.

Best said the rating actions reflect its expectation that the company will maintain a consolidated risk-adjusted capitalization that supports the current ratings.

The ratings also reflect the French insurer's “excellent business profile in the European markets and its strong operating performance,” Best said in a statement.

The ratings agency said that SCOR's consolidated risk-adjusted capitalization is supportive of the current ratings and expects SCOR to further improve through retained earnings in 2008 and 2009.

Best said it believes SCOR has successfully integrated Swiss reinsurer Converium into the group, and the 2007 acquisition has enhanced SCOR's business position, particularly in specialty lines where Converium had a strong presence, such as marine, energy and aviation.

In August and September 2004, Converium was downgraded by Standard & Poor's, A.M. Best and Moody's. The actions came when Converium revealed that it needed to boost reserves on U.S. casualty business by $400 billion, and that an independent actuarial study estimated a further reserve deficiency of $213 million.

Following the downgrades, Converium worked to gradually restore its ratings. In 2007, after months of rejections and speculation, Converium accepted an offer from SCOR. On Aug. 30, 2007, Converium announced it had changed its name and elected a new board of directors to replace its prior board members, all of whom stepped down.

The company name was changed from Converium Holding AG to SCOR Holding (Switzerland) Ltd. The SCOR Group holds 96.32 percent of Converium's share capital.

Markus Dennler, chairman of Converium's board of directors, cited an adjustment in the offer price as the reason for the change of heart.

According to Best, SCOR has an excellent business profile in the European non-life market and life reinsurance markets. During the January and July 2008 renewal seasons, the company was able to retain most of the former Converium book of business.

Best also said it expects non-life gross premiums written to decrease by approximately 4-6 percent in 2008 to EUR3.1 billion ($3.92 billion), mainly due to foreign exchange variations, rate declines and the reduced participation in MDU and GAUM. In life reinsurance, the recent acquisition of Prevoyance Re will further enhance SCOR's leading position in the French life and health reinsurance market. In addition, due to newly established strategic partnerships in Asia, SCOR is likely to build up a stronger presence in these markets.

Despite the difficult financial markets and higher catastrophe losses, SCOR achieved a post-tax profit of EUR2.80 million ($3.54 billion) in the first nine months of 2008–from EUR300 million ($3.79 million) in the first nine months of 2007.

The company's non-life combined ratio stood at 99.2 percent (from 96.4 percent in the previous period) due to higher than expected natural catastrophe claims.

Best said it expects SCOR to benefit from a stabilized pricing environment during the 2009 renewals and to maintain its underwriting standards. As a result of the acquisition of Converium, the combined entity has a higher, albeit more diversified, exposure to natural catastrophes in 2008, which has been partly mitigated by a three-year catastrophic bond, Best said.