Maritime Insurance

Standard & Poor puts Nemi and parent on credit watch

RATING agency Standard & Poor's has thrown a further question mark over the financial health of Scandinavia's recent marine insurance entrants, with Oslo-based Nemi Forsikring placed on credit watch.

The global ratings analysts yesterday gave non-life specialist Nemi and its Icelandic parent insurer Tryggingamidstödin (TM) an investment watch status amid fears of under capitalisation.

Moreover, in a credit rating note that will cast yet more dark clouds over the Oslo marine insurer’s earlier expansion plans, S&P warned that its ‘BBB stable’ rating could be lowered “by one notch or more.”

Nemi senior vice-president Sigmund Romskoug told Lloyd’s List: “Yes, the situation is that we have been placed on credit watch with negative implications by S&P. This reflects the concerns over the increasing levels of debt leverage with the company’s ultimate owner, FL Group.”

Oslo insurer Bluewater has separately signalled the end of its seven-year venture in the marine insurance sector as S&P downgraded its credit rating to BBB- stable from BB+.

S&P credit analyst Ali Karakuyu last week said the Bluewater ratings action reflected the agency’s “heightened concerns” in part from the deterioration in Bluewater’s underwriting performance.

Bluewater has been hit by difficult conditions in the hull market, but Nemi, with its focus on cargo lines, has become embroiled in the wider financial challenges facing its Icelandic parent.

Nemi is one of the major Nordic players in the marine cargo business, which has offered underwriters good premium earnings within relatively low-claims conditions.

S&P yesterday noted that TM and subsidiary Nemi, which was acquired and delisted in 2006, had been placed under its surveillance category with “negative implications”.

The New York-headquartered agency said that the credit watch placement reflected concerns over the increasing levels of debt leverage in the non-rated Iceland-based investment holding company FL. “Uncertainty regarding FL’s ability to service its debt obligations could have consequences for the capitalisation of TM and Nemi”, the ratings agency noted.

However, S&P said it expects to resolve the credit watch status well before the end of the month, and said this would be subject to further discussion with the management of FL and TM.

Mr Romskoug said: “Together with TM and FL Group we are now in a dialogue with S&P in order to get back on track again.”

In December last year, S&P said that Nemi’s BBB stable grading reflected the company’s strong capitalisation and operating performance, and good competitive position.

It also stated that the rating reflected Nemi’s status as a strategically important subsidiary of its Icelandic owner, adding that “no implicit or explicit support from TM is factored into the ratings”.

Moreover, the agency’s previous note observed that the Norwegian company’s “extremely strong” capital adequacy partly offset concerns about its capital base, a slight deterioration in capital quality due to its investment in equity funds and the extent of its reliance on reinsurance.

Nemi has been building up its solvency capital steadily over the decade, with NKr514m behind it at the end of last year as it looked to boost its S&P rating.

The Oslo insurer, along with Bluewater, emerged on the Nordic insurance scene earlier this decade, and last year wrote more than NKr1bn ($200m) gross premiums for the first time.

Speaking to Lloyd’s List in April, president and chief executive of Nemi Ivar Williksen, said the group was looking to expand activities in both the non-marine and marine sector.

Predecessor company Norsk Energiverk Forsikring was established in 1989 and took over Fender Forsikring in 2000, becoming Norway Energy & Marine Insurance in 2003 and Nemi in 2006.

S&P first rated the Oslo non-life insurer in August 2004 as BBB- stable, upgrading it to the present rating status in June 2005 in the wake of the start of its brief outing on the Oslo stock exchange.

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