Best Upgrades Ratings on Northbridge Canada Operations

August 24, 2007

A.M. Best Co. has upgraded the financial strength ratings (FSR) to “A” (Excellent) from “A-” (Excellent) and issuer credit ratings (ICR) to “a” from “a-” of Markel Insurance Company of Canada, Federated Insurance Company of Canada, Commonwealth Insurance Company, Seattle-based Commonwealth Insurance Company of America, Lombard General Insurance Company of Canada and Zenith Insurance Company, both of Toronto, Ontario.

Best also affirmed the “FSR of A-” (Excellent) and the ICR of “a-” of Lombard Insurance Company, and upgraded the ICR to “bbb” from “bbb-” of Northbridge Financial Corporation. All the above companies are subsidiaries of Northbridge. The outlook for all ratings is stable.

“The rating upgrades of the Northbridge subsidiaries reflect their positive 10-year average underwriting and operating performance, which favorably compares with similarly rated insurers, long-term sustainability of financial performance, quality management teams, very favorable reserving trends overall and specific to each subsidiary, niche business focus, capital levels, which exceed the range required for the ratings and above average long-term investment results,” said Best.

Best said it “believes that these positive rating factors collectively have and will continue to result in a sustained positive market reputation, competitive business positioning and above average operating profitability. Furthermore, the ratings consider the position these groups maintain within the Northbridge organization and the implicit and explicit support of Northbridge.

The rating agency did note Commonwealth’s catastrophe exposure to hurricanes Katrina, Rita and Wilma and the “significant negative impact these hurricanes had on both Commonwealth’s and Northbridge’s consolidated financial results in 2005 and 2006.” However, Commonwealth has largely exited and put into run-off its energy and international business segment, where most of the losses occurred. Commonwealth and Northbridge have also reduced their U.S. catastrophe exposures.

“The ratings of Markel, Federated and Lombard General acknowledge their respective niche profiles, well-respected franchises, consistent long-term earnings capability and conservative reserve cultures,” Best continued. “Markel’s strong long-term results have benefited from its positive reputation as Canada’s premier transportation insurer, its quality management team, underwriting discipline, contained average policy limits and numerous innovative value added products and services.

“Federated’s excellent results well reflect management’s knowledge of its customer base, specialized products and services, limited catastrophe exposure, trade association relationships and benefits of a direct sales force, all of which support high retentions.

“Lombard General’s performance has been supported by its broad based commercial lines targeted at small and mid-sized businesses, intentioned specialty lines, commercial trade groups and associations, as well as selected large Canadian businesses. The rating affirmations for Lombard acknowledge the negative operating performance, which resulted from continued commercial liability prior year reserve development.”

Best believes that each of these business segments “will maintain underwriting discipline in the current increasingly competitive market, appropriate capital levels and above average financial performance over the long term.”

Finally Best indicated that the “upgrade of the ICR of Northbridge reflects its lack of financial leverage, the diversified nature of its markets and therefore earnings, its very stable balance sheet, quality reinsurers and projected reduced underwriting and catastrophe exposures at Commonwealth. Northbridge’s annual cash needs primarily are its shareholder dividend payments, which are covered through subsidiary dividend payments. The capital levels of its subsidiaries comfortably allow for these payments.”

Source: A.M. Best –

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