A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of Tenet Insurance Company Ltd (Tenet) (Singapore).

The ratings acknowledge Tenet's adequate capitalization level, prudent net premium leverage and sound liquidity of its invested assets. The ratings also recognize the initiative taken by the company to ensure its pricing adequacy. The revised outlook reflects the concerns A.M. Best has over the underwriting profitability of the motor and workers' compensation lines of business.

Tenet recorded an overall operating loss of SGD 4.3 million in 2008, compared to a net income of SGD 6.7 million in 2007 due to unfavorable underwriting results and investment losses. The operating deficit along with the dividend payment greatly exacerbated the company's risk-based capitalization, as measured by Best's Capital Adequacy Ratio in 2008, although it is still commensurate with the assigned ratings. A decline in surplus also led to an increase in Tenet's net premium leverage from 0.34 times in 2007 to 0.66 times in 2008.

Tenet's liquidity position remained satisfactory as a result of the allocation of more than 60% of assets in cash and fixed income instruments. The company's bond portfolio is mainly composed of the instruments that are secured or issued by either government-linked companies or blue chip listed companies in Singapore, although some of them are non-rated. Nonetheless, unrealized losses in stocks dragged down the net investment yield to -1.6% in 2008 from 5.6% in 2007; however, the recent market recovery will improve the position of Tenet's fair value adjustment reserves.

Offsetting these positive attributes is Tenet's adverse underwriting experience in its key business lines, motor and workers' compensation, which resulted in an unfavorable underwriting result in 2008. Motor and workers' compensation loss ratios surged from 25.3% and 30.0% in 2007 to 92.2% and 149.1% in 2008, respectively. Overall, the company's net loss ratio increased to 61.0% from 27.4% in 2007, while its net claims paid ratio was maintained at approximately 38%.

To strengthen its underwriting profitability, Tenet put emphasis on pricing adequacy through adjusting premium rates in its motor book in 2008 and has taken initiatives in expanding its business line with a higher underwriting margin. Nonetheless, given the level of the company's expense ratio and the prevailing soft market conditions, A.M.

Best remains cautious about the volatility of Tenet's underwriting profitability and the impact on its risk-based capitalization ? although its local statutory capital adequacy ratio of 271% in 2008 is still above the stipulated 120% minimum requirement.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.