Ratings Recap: Rembrandt, XL (notes)
A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of Bermuda-based Rembrandt Insurance Company, Ltd. , a captive operation of Vitol Holding B.V., a global oil trading company. The outlook for both ratings is stable. The ratings reflect Rembrandt’s “excellent risk-adjusted capitalization, strong financial performance and stable business profile,” said Best. As an offsetting factor Best cited the company’s “high concentration in the marine cargo line of business.” Best considers Rembrandt’s risk-adjusted capitalization as “excellent” and it “is expected to remain so through 2011 and into 2012, supported by substantial retained earnings arising from its profitable operating performance and prudent dividend policy. In 2010, Rembrandt’s capitalization was further boosted by a 19 percent increase in retained earnings to $140 million.” Best also noted that Rembrandt’s risk-adjusted capitalization “benefits from an extensive reinsurance program placed with Lloyd’s syndicates and similarly rated companies. After a record result in 2009, Rembrandt’s financial performance remained very strong in 2010, with a net income of $28.5 million mainly driven by a robust underwriting result of $26.4 million. Investment income increased to $2.1 million from $1.0 million in 2009, primarily as a result of an increase in the amount of a loan to a parent company from which Rembrandt gets the bulk of its investment revenues, and is expected to remain at a similar level of return in 2011.” Best also indicated that Rembrandt has “a very conservative investment strategy with all investments being held in cash or cash equivalents and the aforementioned callable loan to a parent company. Rembrandt derives the majority of its income from the reinsurance of marine cargo and liability risks, which accounted for 88 percent of net written premiums in 2010. While the focus on these lines of business represents limited diversification for Rembrandt, this is partially alleviated by the fact that the business relates to a large number of short-term risks (oil shipments) around the world. Rembrandt provided insurance cover for around 3,000 separate oil shipments in 2010, and this broad spread reduces the company’s exposure to the impact of individual natural or man-made events. Rembrandt’s portfolio mix is not expected to significantly change in 2011, as the company’s main strategy is to continue to provide reinsurance cover for the Vitol group’s marine cargo and liability risks.”
A.M. Best Co. has assigned a debt rating of “bbb” to the $400 million 5.75 percent senior notes, due 2021 issued by the Cayman Islands-based XL Group Ltd. and guaranteed by XL Group plc, which is based in Ireland. The outlook assigned to the notes is stable. The proceeds from the issuance will be used to partially repay existing senior notes issued by UK-based XL Capital Finance (Europe) plc, maturing in January, 2012. “XL Group Ltd.’s debt-to-adjusted capital ratio and rolling three-year fixed charge coverage remains comfortably within the range that is commensurate with the assigned rating,” Best concluded.
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