A.M. Best Affirms FSR for Proformance

June 1, 2005

A.M. Best Co. has affirmed the financial strength rating of B (Fair) of The Proformance Insurance Company (Proformance), removing the rating from under review with negative implications. Concurrently, A.M. Best has assigned issuer credit ratings (ICR) of “bb” to Proformance and “b-” to its holding company, National Atlantic Holdings Corporation (National Atlantic) (both of Freehold, N.J.). All ratings have a stable outlook.

These rating actions follow National Atlantic’s April 2005 completion of a $67 million initial public offering and subsequent $43 million capital contribution to Proformance.

Proformance’s positive rating attributes include increased surplus and reduced underwriting leverage in recent years, which has been driven by the receipt of contributed capital from the Ohio Casualty of New Jersey, MetLife Auto & Home and Sentry Insurance transactions.

These transactions were in conjunction with the renewal of New Jersey private passenger auto, homeowners and associated “umbrella” policies with Proformance enabling the company to lower its dependence on reinsurance and enhance its actuarial, underwriting and claims staff.

In addition, the April 2005 capital contribution of $43 million from National Atlantic further reduced underwriting leverage and improved its liquidity position. Furthermore, Proformance received modest private passenger automobile rate increases, reduced assigned Urban Enterprise Zone (UEZ) business through increased voluntary writings, which have lower loss ratios and adjusted its tier rating plan and territorial relativities.

Finally, New Jersey passed private passenger automobile legislation in recent years, designed to increase market capacity and promote competition in the state, as well as reduce fraud and lower the number of uninsured motorists. Due to Proformance’s strategic initiatives and the improved operating environment, its earnings have been on a gradually improving trend since the beginning of 2004, driven by improving underwriting results and increasing investment income.

Proformance’s negative rating factors include above average underwriting leverage and historically adverse loss reserve development. Additionally, unfavorable operating performance over the previous five-year period was reflective of significant underwriting losses, driven by poor personal automobile liability loss experience. Loss experience was unfavorably impacted earlier in this five-year period by New Jersey’s 15% mandatory rate rollback (AICRA) in 1999 on personal auto rates, mandatory assignments of UEZ personal auto business and significant reinsurance costs.

While these issues have dissipated somewhat in recent years, Proformance has been subject to the diminishing impact of inadequate rates relating to price caps on its acquired books of business, which are in place for a three-year period from the date of the transactions.

The company also maintains a significant business concentration as a predominantly New Jersey private passenger automobile writer, which exposes it to market uncertainties created by the political and regulatory environment.

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