RVI Guaranty Co. Claims-Paying Rated 'A' By Fitch IBCA

RVI Guaranty Co. Ltd.'s claims-paying ability is rated 'A' by Fitch IBCA. The rating reflects RVI's current dominant market position in the residual value insurance industry, solid historical underwriting performance, strong parent support, and conservative capitalization. Concerns include recent losses in the company's aircraft line, risks associated with recent expansion into real estate lines, potential diminished market leadership as other companies have entered the business on a strategic basis, and significant concentration among key insureds. Fitch IBCA also recognizes the potential, however limited it may be, for changes in accounting pronouncements to alter the market and demand for accounting treatment-driven residual value insurance coverages.

RVI is a Bermuda-licensed property and casualty insurance company, underwriting residual value insurance risks on a worldwide basis. Total insurance in-force at year-end 1997 was approximately $3.09 billion, with forecasted portfolio value at the corresponding maturity dates of $7.42 billion. The insurance is purchased by asset-based finance transaction participants, generally banks and finance companies, often to fulfill an accounting treatment requirement or facilitate transaction-structuring needs for the secondary market. RVI focuses on four lines of business, with the respective percentages of its total insured portfolio indicated as of year-end 1997: passenger vehicles (67.1 percent), commercial equipment (21.9 percent), aircraft (6.2 percent) and real estate (4.6 percent).

RVI employs several fundamental techniques in all its business lines to mitigate risk. These include writing to a 'zero loss' standard; staggering insurance policy maturities to reduce exposure concentration at a given date; conservatively insuring asset values relative to their expected residual value; defining target markets in terms of asset classes with low degrees of obsolescence and where there exists a liquid secondary market for the asset (if title was acquired). In addition, although RVI writes to zero loss, incurred but not reported (IBNR) reserves equal to 20 percent of earned premium on all insurance policies written subsequent to April 1, 1998 are booked—a conservative measure.

RVI is ultimately 50 percent owned by Quantum Industrial Partners, Ltd., and 50 percent by Continental Casualty Co., a wholly owned subsidiary of CNA Financial Corp. An important factor in the rating is Fitch IBCA's satisfaction with the parental relationships and understanding that both parties have significant and tangible motivation to ensure the viability of RVI. As of year-end 1997 on a consolidated GAAP basis, RVI maintained total stockholders' equity of $103.7 million and total assets of $145.6 million. Operations were profitable, with net income of $2.8 million on net written premiums of $11.3 million. RVI's capital increased markedly from $77.4 million in 1996, due to the net effects of Continental Casualty's purchase of a 50 percent interest in the company. RVI's historical operating performance is compelling; losses paid and accrued since inception have been limited to $9.3 million on cumulative premiums of $65.1 million, a 14.2% loss ratio.