Standard & Poor's (S&P) has lowered its long-term counterparty credit and insurer financial strength ratings on Guernsey-based Polygon Insurance Co. Ltd. (Polygon) to BB+ from BBB- at the company's request. The outlook is stable.
Polygon has ceased the direct underwriting of third-party risks, so asked S&P to revise its ratings.
The lowering of the ratings on Polygon is mainly based on an expected deterioration of the company's capital base during 2001. This weakening of the net assets is expected because of additional reserving against bad debts arising from Polygon's historical exposure to reinsurers, and a likely strengthening of previous-year loss reserves.
Nevertheless, although underwriting activities remain very restricted and conservative, the degree to which Polygon's capital base is able to act as a buffer against unexpected adverse developments is no longer considered to be consistent with ratings in the BBB range.
Polygon's strategy has been reviewed in light of the events of 11 September, and the subsequent significant hardening of aviation insurance rates.
In particular, four of Polygon's airline shareholders (KLM, SAS, Austrian Airlines, and Finnair) have reunited to purchase a joint insurance policy from Dec. 1, 2001 (the fifth shareholder, SAir, is in administration). Through inward reinsurance, Polygon is retaining a limited amount of this shareholder exposure. Direct third-party risk underwriting has now ceased, and Polygon's role should in time evolve to that of a multiparent captive insurer.
