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5 years ago
TEXT-S&P rates Chartis Insurance Co. of Canada 'A'; outlook stable
July 25, 2012 / 1:28 PM / 5 years ago

TEXT-S&P rates Chartis Insurance Co. of Canada 'A'; outlook stable

(The following statement was released by the rating agency)

July 25 -

Overview

-- Chartis Insurance Co. of Canada, a core subsidiary of the Chartis group (ultimately owned by AIG), has a strong market presence in Canada underscored by strong underwriting performance.

-- We are assigning our 'A' counterparty credit and financial strength ratings to the company with a stable outlook.

-- The stable outlook reflects the outlook on the Chartis group.

Rating Action

On July 25, 2012, Standard & Poor's Services assigned its long-term 'A' counterparty credit and financial strength ratings to Canadian-based Chartis Insurance Co. of Canada (Chartis Canada). The outlook is stable.

Rationale

The ratings reflect the core status of Chartis Canada to the Chartis group (we rate the group's core operating companies 'A/Stable') through the company's material contribution to the group (in form of dividend) and to the group's strategy of bolstering its global franchise by geographical diversification and expanding its product offerings to Chartis' global business. Chartis Canada is strongly integrated with and receives significant support from the wider group.

Our ratings also reflect Chartis Canada's strong competitive position in Canada's nonlife insurance market, its strong capital, and strong operating earnings. Limited overall opportunity for further growth arising from the challenging market in Canada, however, partially offset these strengths. Notwithstanding its track record of strong operating performance, the company is susceptible to earnings volatility due, in part, to reserves development and higher expected losses.

Charter Canada's operations in lines of business integral to the overall group's strategy, the brand name, key multinational accounts, substantial reinsurance protection provided by another core affiliate, material dividend contribution to the group, and common sharing of the global infrastructure and systems all help support its status as a core operation for the group.

We view Chartis Canada's competitive position as "strong". The company ranks sixth in overall commercial market share, with top 5 or better position in lines comprising over 65% of its book in commercial property, liability, and accident and health.

Chartis Canada is strongly capitalized with a capital redundancy above the rating level based on the Standard & Poor's capital model. At year-end 2011, shareholders' equity totaled $1.30 billion, up from $1.28 billion in 2010 and $1.35 billion in 2009 (after considering dividend payments to the group).

Chartis Canada has strong operating performance as measured by its combined ratio and return on revenue (ROR); in 2011, the combined ratio and ROR were at 79.4% and 34.5%, respectively, compared with 91.6% and 23.9%, respectively, in 2010. Over the past five years, the average combined ratio and ROR were 80.2% and 32.9%, respectively. We believe Chartis Canada will continue to generate consistent underwriting performance (combined ratio at or below 95% and ROR above 15%) commensurate with the rating.

We believe Chartis Canada's growth opportunities are somewhat constrained by the size of the Canadian market and the abundance of capacity due to the continuous entry of new competitors. While the Canadian insurance market remains profitable, we believe the competitive landscape will limit Chartis Canada's market position in the next couple of years.

Although Chartis Canada's operating performance has been strong, we believe its underwriting performance is susceptible to volatility in part due to reserves development and higher property claims incurred.

Established in 1966, Chartis Canada is an indirect subsidiary of Chartis Inc., which is ultimately and wholly owned by American International Group Inc. (AIG; A-/Stable/A-2). Chartis Canada benefits from its group's resources, expertise, and extensive reinsurance support. As part of the reorganization of its property and casualty insurance business in Canada, AIG consolidated and rebranded the locally domiciled branch and subsidiary as a single entity in 2008 and 2009, respectively. The company expects the Canadian consolidation to enhance the operational efficiency managed under Chartis Americas, one of the three global regions of Chartis Inc.

Outlook

The stable outlook reflects the outlook on the Chartis group which we view as strategically important to the ultimate parent, AIG. We could lower our ratings if operating performance deteriorates and falls short of our expectations due to a material adverse reserve development or an investment loss that could cause capitalization to decline below the 'A' level. On the other hand, we could raise the ratings if operating performance materially improves and consistently outperforms similarly rated peers, while continuing to improve its overall financial profile and enterprise risk management.

Our counterparty and financial strength ratings on Chartis Canada are at the same as our ratings on Chartis group. If we upgrade Chartis group, we may take similar action regarding Chartis Canada, provided our view of Chartis Canada's status within Chartis group remains unchanged.

Related Criteria And Research

-- Group Methodology, April 22, 2009

-- Full Analysis: Chartis Group, May 18, 2012

Ratings List

New Rating; Outlook Stable

Chartis Insurance Company of Canada

Financial Strength Rating

Local Currency A/Stable/--

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