LONDON, Dec. 21 /PRNewswire/ -- Standard & Poor's today affirmed its
triple-'A' long-term counterparty credit and insurer financial strength
ratings on Koelnische Rueckversicherungs-Gesellschaft AG (Cologne Re), and its
subsidiaries General & Cologne Life Re of America Co. (GCLR; formerly Cologne
Life Reinsurance Co. (USA)), and Cologne Reinsurance Co. (Dublin) Ltd. The
outlook on each entity is stable. Standard & Poor's also affirmed its
triple-'A' insurer financial strength ratings on Cologne Reinsurance Co. Ltd.
(UK), General & Cologne Life Re Australasia Ltd., and The General & Cologne Re
Africa Ltd. All three of these entities are unconditionally guaranteed by
Cologne Re.
The ratings are based on Cologne Re's core strategic and operational role
within the General Re Group. Further rating factors are Cologne Re's very
strong global business position, capitalization, and financial flexibility.
Offsetting factors are the deteriorating trend in Cologne Re's underlying
earnings performance, and the recent shortcomings in managerial controls as
evidenced by the company's over-exposure to the Unicover pool.
Major rating factors:
-- Cologne Re is one of the leading players in the global reinsurance
market, with a strong reputation for quality and security. As a
combined entity, the General and Cologne Re group ranks third among the
professional reinsurers offering a wide range of property/casualty,
life/health,alternative solutions, investment, and consulting services.
-- Cologne Re's 1998 consolidated capitalization is very strong on a
risk-adjusted basis, as measured by Standard & Poor's capital model. In
June 1999, shareholders injected DM423.6 million (US$249.2 million)
into Cologne Re, to restore the company's financial strength following
the heavy losses the company experienced earlier in the year as a
result of its participation in the Unicover pool. Including this, total
capital stood at DM2.6 billion at year-end 1998.
-- Operating performance was strong until 1997, but was hit severely in
1998 as a result of Cologne Re's participation in 'carved out' workers'
compensation business written through the Unicover pool. Cologne Re
expects total losses of DM460 million out of this business, caused by
uncontrolled growth and severe underpricing. The company has reserved
for the full amount of these losses in 1998.
-- Cologne Re significantly reorganized GCLR's management team as a
consequence of the Unicover losses, and Standard & Poor's expects even
closer operational integration between General Re and Cologne Re as a
result.
-- Cologne Re operates in lines of 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 the company's
ratings because of 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 in
the next few years.
OUTLOOK: STABLE
Top-line growth is expected to be in the low single digit range, as
unfavorable market conditions prevail. Growth opportunities will be mainly in
life and health reinsurance, whereas Cologne Re's property/casualty portfolio
is expected to shrink further. However, premium growth in life and health
reinsurance will largely depend on Cologne Re's ability to restrengthen its
franchise in North America following the Unicover losses. Underlying earnings
performance will continue to deteriorate in 1999, with the combined ratio
expected to weaken between 1% and 2%. Standard & Poor's believes that
potential further losses out of Cologne Re's exposure to Unicover could have
an additional negative effect. Risk-based capitalization will remain at least
in the double-'A' range, Standard & Poor's said. -- CreditWire
SOURCE Standard & Poor's CreditWire
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Related links:
http://www.standardandpoors.com/ratings
CONTACT:
Karin Clemens of Standard & Poor's,
+44-171-826-3653
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