Ratings Recap: Interstate Auto, EMC, Amica Mutual, CAPCO, CMG Mortgage, Clarendon

April 16, 2008

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B-‘ (Fair) from ‘B’ (Fair) and issuer credit rating (ICR) to “bb-” from “bb+” of Interstate Auto Insurance Company, Inc. of Baltimore, MD, and has revised the outlook to negative from stable.
Best said the “rating actions reflect Interstate Auto’s unfavorable operating performance and deteriorating surplus. As a single state auto writer in Maryland, Interstate Auto’s underwriting results are susceptible to competitive market pressures, and as a result, premium writings declined significantly in recent years. In addition, overall results are hampered by elevated underwriting expenses. Since uncertainty remains regarding the ultimate success of the company’s recent profit driven strategies and its ability to generate capital, the rating outlook has been revised to negative.”

A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of EMC Insurance Companies (EMC), its P/C members and EMC Reinsurance Company (EMC Re). Best also affirmed the ICR of “bbb-” of the group’s publicly traded, downstream holding company, EMC Insurance Group Inc. The outlook for all ratings is stable. All the above named companies are domiciled in Des Moines, Iowa. “The affirmation of EMC’s ratings reflects its excellent risk-adjusted capitalization, significantly improved operating profitability in years 2005-2007 and the continued benefits it will derive from management’s positive actions over the past several years associated with pricing and risk selection, claims management and reserving methodology,” Best explained. “EMC’s surplus has increased at a compound annual rate of 18 percent over the past five years, and the group maintains capitalization well in excess of levels required for its ratings.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A++’ (Superior) and issuer credit rating (ICR) of “aa+” of Amica Mutual Group, as well as the lead company, Amica Mutual Insurance Company and its other affiliates, Amica Lloyd’s of Texas and Amica Property & Casualty Insurance Company. Best also affirmed the FSR of ‘A+’ (Superior) and ICR of “aa-” of Amica Life Insurance Company. The outlook for all ratings is stable. “The affirmation of Amica’s ratings reflect its outstanding capitalization, strong enterprise risk management practices, solid operating performance and well established market position as one of the 60 largest property/casualty insurers in the United States,” said Best. “These strengths are derived from management’s solid underwriting fundamentals, geographic diversification strategy and low cost distribution channels.”

Standard & Poor’s Ratings Services indicated that its “rating on Customer Asset Protection Co. (CAPCO; ‘A+’/Negative/–) is unaffected by the recent downgrade of Broadridge Financial Solutions Inc. (Broadridge; ‘BB’/Negative/A-3). (Ridge Clearing & Outsourcing Solutions Inc. is a subsidiary of Broadridge and a member of CAPCO.) However,” S&P continued, “because the credit quality and risk management of CAPCO’s members affect the rating on CAPCO, further deterioration in the credit quality or risk management of CAPCO’s members could hurt the rating. We noted this on March 24, 2008, when we revised our outlook on CAPCO to negative.”

Standard & Poor’s Ratings Services has removed its ‘AA-‘ counterparty credit and financial strength ratings on CMG Mortgage Insurance Co. (CMG MI) from CreditWatch with negative implications. S&P also affirmed the ratings on CMG MI with a negative outlook. “The affirmation reflects our view that the recent downgrade of PMI Mortgage Insurance Co. (PMI MIC), a co-owner of CMG MI, will not have a material impact on CMG MI’s financial strength,” explained S&P credit analyst James Brender. “When we lowered the financial strength rating on PMI MIC on April 8, 2008, we placed the ratings on CMG MI on CreditWatch negative to evaluate the impact of the downgrade on CMG MI.”

Standard & Poor’s Ratings Services has affirmed its ‘BBB+’ counterparty credit and financial strength ratings and stable outlook on Clarendon National Insurance Co. and its wholly owned subsidiary, Clarendon America Insurance Co. (collectively, Clarendon). Both companies are ultimately owned by German reinsurer Hannover Rueckversicherung AG (Hannover Re; AA-/Stable/–). S&P subsequently withdrew the ratings on Clarendon at management’s request. “The ratings reflect Clarendon’s continuing strong explicit reinsurance support from Hannover Re in the form of a $250 million adverse development cover (ADC), continued progress toward the orderly execution of its run-off business, very strong capital adequacy, and substantially reduced disputed reinsurance recoverable balances as of year-end 2007,” noted S&P credit analyst Siddhartha Ghosh. S&P added that it continues to “view Clarendon as nonstrategically important to Hannover Re.”

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