Best Affirms Wind River Re’s ‘A’ Ratings, Stable Outlook

June 25, 2009

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Bermuda-based Wind River Reinsurance Company, Ltd. and its U.S. subsidiaries. Best also affirmed the ICR of “bbb” of the parent holding company, United America Indemnity, Ltd. (UAI), which is based in the Cayman Islands. The outlook for all of the ratings is stable.

“These ratings reflect the strong capitalization and diversified portfolio of specialty products provided on both an admitted and non-admitted basis by Wind River Re and its U.S. subsidiaries,” Best explained. “The ratings also reflect the historical profitability of the U.S. subsidiaries, which began operating under a single pooling agreement as of January 1, 2009, whereby they pool their premiums and liabilities and cede 50 percent of the combined net retained liabilities to Wind River Re.

“The ratings of the former, separate United National Group and Penn-America Group have been withdrawn. Wind River Re also has been slowly building a book of unaffiliated, third-party reinsurance business to complement the affiliated business. At the end of 2008, on a gross basis, the third-party business comprised less than 10 percent of the company’s total written premium, with that proportion expected to grow in 2009.”

However, Best also indicated that the positive rating factors “are tempered by the unprofitable operating results of 2008, when a sizeable underwriting loss combined with investment related losses spurred by the substantial financial market downturn, produced a substantial operating loss. The underwriting losses primarily were caused by the unfavorable impact of certain run-off classes of program business, along with property catastrophe losses, specifically from Hurricane Ike.”

In addition Best noted that “despite a high quality portfolio predominantly comprised of traditional fixed income securities and to a far lesser extent, common and preferred equities, the overall financial market downturn impaired returns as considerable realized and unrealized losses were reported.

“On a combined basis, written premium for the U.S. operations decreased by nearly 35 percent, which had a negative impact on underwriting profitability; however, some of the decrease resulted from the planned discontinuation of relationships with agents and brokers that had been producing unsatisfactory results.

“The effort to develop and cultivate more fruitful and mutually beneficial relationships with its distribution force was a major initiative for UAI in 2008 that along with other significant re-engineering and re-structuring initiatives, is expected to positively impact underwriting and operating results in 2009. Failure to return to operating performance levels more in line with historical results would likely result in negative rating pressure on UAI and its subsidiaries.”

Best summarized its ratings on the Group as follows:
The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for Wind River Re and its following subsidiaries:
— Diamond State Insurance Company
— Penn-America Insurance Company
— Penn-Patriot Insurance Company
— Penn-Star Insurance Company
— United National Casualty Insurance Company
— United National Insurance Company
— United National Specialty Insurance Company

The FSR of ‘A’ (Excellent) and ICRs of “a” have been withdrawn and a category
NR-5 (Not Formally Followed) has been assigned to the FSR and an “nr” to the ICRs of Penn-America Group and United National Group.

The following indicative ratings have been affirmed under the universal shelf registration:
United America Indemnity, Ltd.—
— “bbb” on senior unsecured debt
— “bbb-” on subordinated unsecured debt
— “bb+” on preferred stock

Source: A.M. Best –

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