Fitch Completes Insurance Notching Review for North American Reinsurance

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has completed a portfolio review covering 13 groups within the North American Reinsurance sector. Fitch also reviewed one life insurance group with a hybrid issuance similar to that of these reinsurers. The review focused exclusively on the application of Fitch's recently updated notching criteria for the insurance industry. Its purpose was to identify any ratings that should be changed as a result of the application of the updated notching criteria.

SUMMARY OF RATING ACTIONS

The review resulted in 13 rating downgrades, 4 rating upgrades, and all of the remaining ratings affirmed.

A link to a summary report that details all of the rating actions taken as part of the portfolio review is available at the end of this release.

The linked summary report includes:

--A full list of ratings and related rating actions;

--A hyperlink to each rated entity's ratings summary page on the Fitch website;

--Primary analyst and secondary analyst contact information;

--Participation status.

The downgrades only affected Issuer Default Ratings (IDR), debt and hybrid ratings, with no downgrading of any Insurer Financial Strength (IFS) ratings. The downgrades primarily reflect the application of a 'ring-fencing' approach to global groups that have more than 30% of earnings or capital from foreign subsidiaries. This resulted in the holding company IDR lowered to one notch below the operating company IDR. Previously, these groups were notched based on a 'moderate' regulatory environment approach (such as Bermuda) that aligned the holding company IDR with the operating company IDR.

Several hybrid ratings were upgraded that have 'minimal' non-performance risk. Notching is set two below the IDR based on 'Poor' recovery expectations, with no additional notching for non-performance. Under prior criteria, a notch was added for non-performance.

In addition, two IFS ratings were upgraded to one notch above the operating company IDR to reflect Fitch's view that regulators will move to preserve insurance company assets in a stress scenario that will directly benefit policyholder and reinsurance obligations. Previously, IFS ratings of reinsurers were only rated above the IDR if reinsurance obligations were afforded legal priority.

Fitch published updated insurance notching criteria on July 14, 2015, following publication of an initial exposure draft of proposed criteria on May 12, 2015. The updated notching criteria appear in Section VI of the insurance master criteria report 'Insurance Rating Methodology'.

Notching refers to the practice of establishing a given rating relative to a defined 'anchor' rating, using guidelines linked to certain characteristics of the rating that is being notched. For Fitch's insurance ratings, the IFS rating is the initial anchor rating, and other ratings that are notched relative to it include IDRs of operating and holding companies, and debt/hybrid obligation ratings.

Fitch updated its notching criteria in light of changes in the regulatory landscape, including the movement in Europe and other jurisdictions to Solvency 2 or a Solvency 2-type regulatory framework. As a result, from a global perspective, notching changes are more pronounced in Europe and other such jurisdictions, and more limited in the U.S. and similarly regulated countries.

KEY RATING DRIVERS

For this ratings review, the key rating driver was the impact of updated notching criteria. See most recently published rating action commentaries or research reports for additional information on other Key Ratings Drivers pertinent to specific entity ratings.

RATING SENSITIVITIES

Not applicable to this portfolio review given its limited focus on implementation of updated notching criteria. See most recently published rating action commentaries or research reports for additional information on Rating Sensitivities pertinent to specific entity ratings.

PREVIOUSLY REVIEWED ENTITIES

While included in the North American Reinsurance sector, the ratings for the following groups were not reviewed as part of the portfolio review. These entities' ratings were previously updated to reflect the new notching criteria, with details available via the rating action commentary listed below.

--Fitch Affirms RenRe's Ratings; Upgrades Preference Shares (Aug. 14, 2015)

www.fitchratings.com/site/fitch-home/pressrelease?id=989522

--Fitch Affirms Validus' Ratings; Upgrades Hybrid Debt (Aug. 17, 2015)

www.fitchratings.com/site/fitch-home/pressrelease?id=989570

LIMITATIONS

The portfolio review was limited in scope, and only included an assessment of updated notching criteria as outlined in Section VI (Notching: Debt, Hybrid, IFS Rating and Holding Companies) of Fitch's insurance master criteria. None of the factors outlined in Section I (Key Rating Factors) of the master criteria, or any other elements discussed in the master criteria, were reviewed. Where relevant, Fitch considered the appropriateness of the relative ranking of ratings in the North American Reinsurance sector, after initial consideration of updated notching guidelines, as part of the portfolio review.

Additional information is available on www.fitchratings.com

Fitch Completes Insurance Notching Review for North American Reinsurance
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870352

Applicable Criteria

Insurance Rating Methodology (pub. 14 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990025

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990025

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Fitch Ratings

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or

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Source: Fitch Ratings