Ratings Roundup: Liberty Mutual, PMA, Selective, Lititz, Brethren

May 20, 2008

Standard & Poor’s Ratings Services has assigned its ‘BB+’ junior subordinated debt rating to Liberty Mutual Group Inc.’s (LMGI) Series C junior subordinated notes in an amount up to $1.25 billion with a scheduled maturity date of 2058. S&P has also placed the rating on CreditWatch with negative implications. S&P said the placement is in line with its action in placing the “ratings on LMGI and its insurance affiliates on CreditWatch negative on April 23, 2008, following the company’s announcement that it has signed a definitive agreement to purchase Seattle-based Safeco Corp. for about $6.2 billion in cash. That transaction should close in the third quarter of 2008. LMGI intends to finance the purchase price primarily with internally generated funds and with the proceeds of this hybrid issue.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of PMA Insurance Group of Blue Bell, Penna. and its pooled members, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company. Best has also affirmed the ICR of “bb” and debt ratings of the parent, PMA Capital Corporation. All of the ratings have a stable outlook. “The ratings reflect PMA Insurance Group’s supportive capitalization, improved operating profitability in recent years and strong regional workers’ compensation market presence,” said Best.

Fitch Ratings has affirmed Selective Insurance Group, Inc.’s (Selective) ratings as follows – Issuer Default Rating (IDR) ‘A-‘; –Senior debt ‘BBB+’; –Junior subordinated debt ‘BBB’. Fitch also affirmed the ‘A+’ Insurer Financial Strength (IFS) rating of the members of the Selective intercompany pool. All of the outlooks on the ratings are stable. “The affirmations reflect Selective’s consistently favorable operating results, disciplined underwriting culture, conservative balance sheet, strong independent agency relationships, and improved diversification through continued efforts to reduce its concentration in New Jersey,” Fitch explained. “Selective’s strong regional presence and small and middle market commercial lines focus has allowed for continued premium rate increases above industry experience and manageable catastrophe risk. Selective’s primary operating states do not include the large-catastrophe prone states of Florida, California, Texas, Alabama, or Louisiana.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” of Lititz Insurance Companies (LMIG). Best also affirmed the FSR of ‘A+’ (Superior) and assigned ICRs of “aa-” to LMIG’s members. LMIG consists of Lititz Mutual Insurance Company (LMIC), Farmers and Mechanics Mutual Insurance Company (FMMIC) and Livingston Mutual Insurance Company (LMIC). All of these companies operate under an inter-company quota-share reinsurance agreement with LMIC. The outlook for these ratings is stable. Concurrently, Best upgraded the FSR to ‘A+’ (Superior) from A (Excellent) and ICR to “aa-” from “a” of Penn Charter Mutual Insurance Company (PCMIC), making it a member of LMIG. “The rating upgrades are a result of the execution of an intercompany quota-share reinsurance agreement with LMIC,” Best explained. The outlook assigned to these ratings is stable. All companies are domiciled in Lititz, PA. “The ratings recognize LMIC’s superior risk-adjusted capitalization, low underwriting leverage, strong liquidity measures and prominent market position among its long-standing independent agents,” said Best. “Offsetting these positive rating factors is the group’s exposure to weather-related losses in the Midwest and Southeast that affect the group’s profitability and its elevated common stock leverage, which exposes surplus to possible equity market fluctuations.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of The Brethren Mutual Insurance Company of Hagerstown, MD. Best said the “ratings reflect Brethren Mutual’s solid capitalization, favorable operating performance and long standing market presence in Maryland. These positive rating factors are partially offset by Brethren Mutual’s geographic concentration in Maryland, although the company has taken steps to diversify its geographic presence through expansion in Pennsylvania and western areas of Virginia.”

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