Fitch Ratings has affirmed the ratings of Platinum Underwriters Holding Ltd. (PTP) and subsidiaries. The Rating Outlook has been revised to Negative from Stable. A full list of ratings is included at the end of this release.
The revision in Outlook reflects Fitch's observation that PTP's recent underwriting performance has exhibited significantly greater volatility than was expected for a (re)insurer in PTP's current rating category. Moreover, significant upward development of PTP's incurred loss estimates from the large catastrophe events of the first half of 2011 (1H'11) in its third quarter 2011 earnings release demonstrates challenges the company faces in measuring and controlling exposure to large losses.
PTP reported a combined ratio of 156.3% in the first nine months of 2011 due to $439 million of catastrophe losses, largely related to earthquakes in Japan and New Zealand, as well as severe weather and tornado damage in the U.S. Included in these losses is PTP's recently revised $98.3 million higher estimate for 1H'11 catastrophe losses. Year-to-date catastrophe losses represent 23.1% of the company's shareholders' equity at year-end 2010.
Fitch notes that the reinsurance industry as a whole has endured unusually large catastrophe losses in 2011; however, PTP's losses from these events are significantly higher than comparably rated peers, as measured as a percentage of earned premiums and GAAP equity.
Fitch's ratings of PTP recognize that despite the company's unusually poor performance in 2011, the company maintains a longer term history of strong underwriting results and profitability. PTP's ratings also reflect the company's solid capitalization, moderate financial and operating leverage, as well as its high-quality and liquid investment portfolio.
Fitch views PTP's use of financial leverage as moderate and its historical operating earnings-based interest coverage as good. At Sept. 30, 2011, the company's debt-to-capital ratio was 12.6% and from 2006 through 2010 the company's operating earnings-based interest coverage averaged a strong 14.6 times (x).
Fitch views PTP's investment portfolio as high-quality with good liquidity characteristics. The company invests almost entirely in fixed income and cash and short-term investments, although at 5.7 years at Sept. 30, 2011, the duration of the company's overall investment portfolio is somewhat higher than many of its peers, which could expose the company to significant unrealized investment losses if interest rates were to rise rapidly.
Key rating triggers that could result in a ratings downgrade include:
--Protracted declines in PTP's underwriting results that creates a 10
percentage point unfavorable margin between PTP and similarly rated
companies over the next 12-18 months.
--Further material
unfavorable development on 2011 catastrophe loss estimates.
--Material
declines in capitalization that caused the company's shareholder's
equity to fall below $1.5 billion, excluding the benefit of PTP's net
unrealized investment gain position.
Key rating triggers that could result in a Stable Outlook include:
--Stabilization of underwriting results and a return to underwriting
profitability with volatility comparable to those of 'A' rated peers.
--Exhibiting
future loss experience on catastrophes that is in line with similarly
rated peers.
--Continued favorable to stable reserve development on
prior losses.
Fitch has affirmed the following ratings with a Negative Outlook:
Platinum Underwriters Holdings, Ltd.
--Issuer Default Rating (IDR)
at 'A-';
Platinum Underwriters Finance, Inc.
--IDR at 'A-';
--7.50%
series B senior unsecured notes at 'BBB+'.
Platinum Underwriters Bermuda Ltd.
--IFS at 'A'.
Platinum Underwriters Reinsurance, Inc.
--IFS at 'A'.
Additional information is available at www.fitchratings.com. The issuer did not participate in the rating process other than through the medium of its public disclosure.
The ratings above were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Insurance Rating
Methodology' (Sept. 22, 2011).
Applicable Criteria and Related Research:
Insurance Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018
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Contacts:
Fitch Ratings
Primary Analyst:
Christopher A. Grimes, CFA,
+1-312-368-3263
Associate Director
Fitch, Inc.
70 W.
Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Gregory
W. Dickerson, +1-212-908-0220
Director
or
Committee
Chairperson:
Douglas L. Meyer, CFA, +1-312-368-2061
Managing
Director
or
Media Relations:
Brian Bertsch,
+1-212-908-0549
brian.bertsch@fitchratings.com
