Standard & Poor's withdrew its double-'B'-plus counterparty credit and insurer financial strength ratings on Tuesday, December 11 on the Bahrain-based Arig Reinsurance Co. BSC (ARIG Re) at the request of the company's management.
ARIG reported consolidated losses of $51 million for the nine months of 2001, of which $48 million is attributable to the third quarter alone. Almost all of the losses are contributed by Arig Re and consist mainly of $22 million arising from September 11 aviation claims, seven million dollars of unrealized investment losses, seven million dollars for a reinsurance claim dispute dating back to 1992, and four million dollars for pipeline premium estimate adjustments.
In the fourth quarter, the company will incur additional losses from the November 12 American Airlines crash, which is expected to result in a net cost to the group of about five million dollars.
Standard and Poor’s decision follows a resolution by the parent company, Arab Insurance Group BSC (ARIG) to assume the reinsurance operations and all of the assets and liabilities of Arig Re as of October 1, 2001. At the time of the withdrawal, the ratings on Arig Re were on CreditWatch with positive implications.
The ratings on Arig Re, along with those on a number of other insurance groups, were initially placed on CreditWatch with negative implications on September 20, 2001, to reflect the potential impact of losses arising from the September 11 terrorist attacks. The ratings were lowered to double-'B'-plus from triple-'B'-plus on November 15, 2001, to reflect the impact on the company's capitalization and financial flexibility of the $48 million third-quarter losses at the company's parent, ARIG. These losses arose from the September 11 terrorist attacks and certain other issues.
According to Standard & Poor's capital adequacy model, the impact of these events has left Arig Re's capital at the double-'B' level. At year-end 2000, Arig Re's risk-based capitalization was in the single-'A' category. ARIG, as parent provided a guarantee in favor of Arig Re's policyholders. This guarantee gives the policyholders access to ARIG's capital resources and renders ARIG's capital base partly fungible. The group's consolidated capital adequacy is currently in the triple-'B' category according to Standard & Poor's model, having also been in the single-'A' category at year-end 2000.
Arig Re planned to raise additional capital directly from some of the parent's founder shareholders. The possibility of this capital injection was the basis for the CreditWatch revision to positive from negative on Arig Re. The capital has not yet been raised, however, and ARIG group management has instead commenced underwriting all new and renewal reinsurance business at ARIG, and has transferred all Arig Re assets and liabilities to ARIG, with Arig Re to be placed into voluntary liquidation. The liquidation process should be completed during the first quarter of 2002, with a subsequent transfer of Arig Re's residual shareholders' funds to ARIG.
Other rating factors were ARIG's good business position in the Middle East and Afro-Asian reinsurance markets, offset by the very poor 1999 and 2000 operating performance. Excluding the aviation claims referred to above, continuing business has returned to underlying profitability in 2001. ARIG's primary insurance subsidiaries have been profitable in 2001.
With its head office located in Bahrain and branch offices in Tunis, Hong Kong, Kuala Lumpur and Seoul, Arig Re services clients in its core Arab, African and Asian markets since 1981. — (menareport.com)
© 2001 Mena Report (www.menareport.com)
