Best Makes Esurance Ratings Changes

August 7, 2007

A.M. Best Co. has assigned a financial strength rating (FSR) of “A-” (Excellent) and an issuer credit rating (ICR) of “a-” to the Esurance Insurance Group (Esurance). In conjunction with the assignment, Best also announced that it has downgraded the FSR to “A-” (Excellent) from “A “(Excellent) and the ICRs to “a-” from “a” of Madison Wis.-based Esurance Insurance Company (EIC) and San Francisco-based Esurance Property and Casualty Insurance Company (EPC).

“Previously, EIC and EPC, the members of Esurance, were rated ‘A’ (Excellent), based upon the FSRs of their affiliated reinsurer, Sirius International Insurance Corporation (Sirius) (Stockholm, Sweden) [See also ‘Ratings Recap] and their former affiliated reinsurer, OneBeacon Insurance Company (OneBeacon) (Philadelphia, PA),” Best explained.

The rating agency also noted that it has withdrawn the FSR of “A” (Excellent) and the ICR of “a” and assigned a category NR-3 (Rating Procedure Inapplicable) to Esurance’s affiliate, Esurance Insurance Company of New Jersey (EIC NJ) (also based in Madison, Wis.) The outlook for all of the ratings is stable.

Best explained that the rating actions “reflect Esurance’s current business profile given the recent change in EIC’s affiliated reinsurance arrangements from an 85 percent quota share to the affiliated Sirius in late 2006 to an 85 percent quota share evenly split between Sirius and the affiliated Folksamerica Reinsurance Company (Folks Re) (New York, NY), effective January 1, 2007.”

The assigned ratings have considered “Esurance’s favorable direct underwriting results, strong current and projected consolidated risk-adjusted capitalization and the ongoing support of its ultimate parent,” Bermuda-based White Mountains Insurance Group Ltd. (WTM),” Best indicated.

As offsetting factors Best cited “Esurance’s historically high rate of growth, significant reinsurance dependence and historical operating results less favorable than their peer group. The group cedes 85 percent of its direct premiums under a quota share agreement with two separate companies that are subsidiaries of WTM.”

The stable outlook reflects Best’s view that “capitalization will remain strong and both underwriting and overall earnings will improve in the medium term.”

Concerning the withdrawal of EIC NJ’s ratings, Best explained that the action acknowledges the termination of its 100 percent reinsurance treaty with its affiliate, OneBeacon, during 2006 and its sale by OneBeacon to EIC on July 31, 2006. EIC NJ “has been dormant since 2005,” said Best. It also noted that “plans call for the company to begin writing private passenger auto insurance for New Jersey residents and to cede virtually all of this business to EIC later in 2007.”

Esurance only writes private passenger auto insurance, which is sold through its web site. Its highly automated operating systems have facilitated significant growth over a five-year period. Esurance utilizes a rules-based underwriting methodology with claims offices strategically located throughout the country.

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