Ratings Recap: Farmers Home, Grain Dealers, Affirmative, CAPCO, Cincinnati Companies

March 27, 2008

A.M. Best Co. has withdrawn the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” and assigned a category NR-5 (Not Formally Followed) to Farmers Home Fire Insurance Company (FHFIC). Best said these “rating actions reflect the merger of FHFIC into United Home Insurance Company (UHIC) (Newkirk, OK). Following the merger, UHIC acquired all of FHFIC’s outstanding stock and is the surviving entity. Currently, UHIC is not rated and has a category NR-5.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘B+’ (Good) from ‘B’ (Fair) and has assigned an issuer credit rating (ICR) of “bbb-” to Indianapolis-based Grain Dealers Mutual Insurance Company, and has revised the outlook on the FSR to stable from positive; the outlook assigned to the ICR is also stable. “These rating actions reflect Grain Dealers’ strong and significantly improved risk-adjusted capitalization, management’ s actions designed to reduce exposures to natural catastrophe events and the company’ s improving risk management’s initiatives,” Best explained. “Offsetting these positive rating factors are Grain Dealers’ historically weak operating results, elevated (although improving) underwriting leverage, exposure to natural catastrophes and uncompetitive expense structure.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B’ (Fair) and the issuer credit ratings (ICR) of “bb+” of Affirmative Insurance Group and two of its members, Affirmative Insurance Company and Insura Property and Casualty Insurance Company. Best also assigned an FSR of ‘B’ (Fair) and ICRs of “bb+” to Affirmative’s other members, Affirmative Insurance Company of Michigan and USAgencies Casualty Insurance Company, Inc. of Baton Rouge, La. Concurrently, Best has affirmed the ICR of “b” of Affirmative’ s parent company, Affirmative Insurance Holdings, Inc. The outlook for all ratings is stable. All administrative offices are located in Addison, Texas. “The affirmations recognize Affirmative Holdings’ elevated tangible financial leverage position following its acquisition of USAgencies LLC,” said Best. “As a result, considerable pressure may exist on the insurance subsidiaries to meet debt service requirements and other holding company obligations amid increased competition in its niche focus providing non-standard automobile insurance products.”

Standard & Poor’s Ratings Services has revised its outlook on Customer Asset Protection Co. (CAPCO) to negative from stable. S&P has also affirmed its ‘A+’ counterparty credit and financial strength ratings on CAPCO. S&P said it “assigns a negative outlook when we believe the probability of a downgrade within the next two years is at least 30 percent.” Credit analyst James Brender explained: “The revised outlook reflects the challenging environment for broker/dealers and their parents. Deterioration in their credit quality and risk-management capabilities could affect CAPCO’s financial strength.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A++’ (Superior) and issuer credit ratings (ICR) of “aa+” of The Cincinnati Insurance Companies (CIC) and its standard line P/C members. Best also affirmed the FSR of ‘A+’ (Superior) and ICR of “aa-” of The Cincinnati Life Insurance Company, as well as the ICR of “aa-” and senior debt ratings of CIC and Cincinnati Life’s publicly traded parent, Cincinnati Financial Corporation (CINF). The outlook for all ratings is stable. All companies are domiciled in Fairfield, Ohio. “The ratings for CIC reflect its superior risk-adjusted capitalization, very strong five-year average operating performance, historically redundant reserves and highly successful business profile within its targeted regional markets, which centers on a distribution system developed through strong relationships with local independent insurance agencies,” said Best. “The group also benefits from the financial flexibility afforded by CINF, which maintains modest financial leverage, strong interest coverage ratios and considerable liquid assets.”

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