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Rating Action:

MOODY'S ASSIGNS FIRST TIME A3 INSURANCE FINANCIAL STRENGTH RATING (IFSR) TO VESTA FORSIKRING AND AFFIRMS TRYG FORSIKRING'S A3 IFSR; STABLE OUTLOOKS FOR RATINGS

07 Jun 2004
MOODY'S ASSIGNS FIRST TIME A3 INSURANCE FINANCIAL STRENGTH RATING (IFSR) TO VESTA FORSIKRING AND AFFIRMS TRYG FORSIKRING'S A3 IFSR; STABLE OUTLOOKS FOR RATINGS

London, 07 June 2004 -- Moody's Investors Service today has assigned a first time A3 insurance financial strength rating (IFSR) to Vesta Forsikring AS (Vesta) with a stable outlook. The rating agency also said that it has affirmed the A3 IFSR on Tryg Forsikring A/S (Tryg) and maintained a stable outlook on the rating.

Moody's said that the A3 IFSR assigned to Vesta reflects its core position within the TrygVesta Group (TVG) as the Group's main Norwegian operation. The rating agency said that the affirmation of Tryg's rating follows the return to profitability in 2003, and Q1 2004, of TVG and its main operating entities. As well as being the Group's main Danish operating company, Tryg is also the holding company for all of TVG's non-life operations including Vesta.

Commenting specifically on Vesta's rating, Moody's said it believes that, on a stand-alone basis, the financial fundamentals of Vesta are currently weaker than those of Tryg. The rating agency elaborated that Vesta's underwriting and bottom-line performance in 2003 was inferior to that of Tryg, noting Vesta's combined ratio of 106% compared to Tryg's 99%. Furthermore, the rating agency believes Vesta's capitalisation, although meaningful when including its security and natural peril reserves, to be currently weaker than that of Tryg. Moody's said that, in its opinion, the main underwriting challenge for TVG is improving the underwriting performance of Vesta. Moody's said that Vesta's A3 rating reflects implicit support from TVG as a result of Vesta, together with Tryg, being by far the largest and most important operations within TVG. The rating also reflects the fact that Vesta is subject to the same management controls as Tryg, which the rating agency believes should lead to further improvements in underwriting performance, as well as Moody's expectation that Vesta's financial fundamentals will continue to move in line with those of Tryg.

Moody's continued that the A3 IFSRs on Tryg and Vesta reflect the leading position of TVG in its two core markets, Denmark and Norway. The rating agency said that Tryg and Vesta are respectively the largest and third largest players in the Danish and Norwegian markets with 22% and 20% market shares. Furthermore, TVG is the second largest pan-Nordic player with a 15% market share after the If Group (A2 IFSR) which has a 22% market share. Moody's considers the underwriting portfolios of both Tryg and Vesta to be relatively diverse and to have a relatively low risk profile.

Moody's said that the ratings also recognise the return to profitability in 2003 of TVG as well as Tryg and Vesta specifically. The rating agency said that TVG produced an almost DKK3 billion improvement in its operating result for 2003 compared to 2002, reporting net income of DKK742 million compared to a loss of DKK2.1 billion in 2002. The Group's combined ratio also improved significantly to 103% in 2003 from 112% in 2002. Moody's further notes the net income of DKK225 million recorded by the Group for Q1 2004.

In addition, Moody's said that the Group's capital position improved in 2003 following the DKK1.1 billion capital injection from the Group's ultimate owner, Tryg i Danmark smba, and the 2003 profit. The rating agency noted that the Group's financial gearing at year end 2003 was at a fairly moderate level of 20%, improved from 23% in 2002, and that the Group's solvency ratio has improved from 39% in 2002 to 49% in 2003.

On the less positive side, Moody's said that the Group's 2003 results were undermined by reserve strengthening/run-off losses of some DKK700 million with under-performance in accident and workers compensation lines, especially at Vesta. The rating agency also noted that the Group's 2003 result had been undermined by the negative performance of the UK run-off reinsurance operation, Chevanstell Limited.

Moody's said that it believes that other credit challenges for TVG are its heavy concentration on the Danish and Norwegian markets, with relatively little presence elsewhere, and the relatively high level of reinsurance recoverables which amount to around 55% of the Group's shareholders equity. Furthermore, Moody's believes that TVG's ownership structure affords relatively little financial flexibility, with limited capital support available from Tryg i Danmark.

However, with the strong focus from management on underwriting performance and expense control, it is Moody's expectation that TVG will achieve its target combined ratio of 100% for 2004 with a further improvement in 2005, noting that the low investment yield environment is placing even greater pressure on underwriting performance. The rating agency added that further improvements in profitability and capitalisation, together with greater franchise strength and financial flexibility would place upward pressure on the A3 ratings.

Based in Ballerup, Denmark, Tryg Forsikring A/S reported gross premiums of DKK8 billion and total assets of DKK18.5 billion at year end 2003.

Based in Bergen, Norway, Vesta Forsikring AS reported gross premiums of NKK7.2 billion and total assets of NKK13.7 billion at year end 2003.

The TrygVesta Group reported total assets of DKK31.4 billion and shareholders' funds of DKK5.4 billion at year end 2003.

The following rating was assigned with a stable outlook:

Vesta Forsikring AS- insurance financial strength rating of A3.

London
Mark Hewlett
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454

London
Dominic Simpson
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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