Ratings Recap: Republic Western, Benchmark, Companion, Auto Owners, LEMIC, Clearwater, Nodak

May 29, 2008

A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘B ‘(Fair) and the issuer credit ratings (ICR) of “bb” of the Republic Western Insurance Group, which consists of Republic Western Insurance Company of Phoenix, Ariz., and its wholly owned subsidiary North American Fire & Casualty Insurance Company of Mandeville, La. The outlook for all the ratings is stable. “The ratings reflect the group’s improved risk-adjusted capitalization and underwriting performance in recent years, primarily driven by management’s corrective actions,” Best explained. The ratings also consider the improved financial condition of its parent, AMERCO. However, Best also noted that while the “performance and capitalization have improved in recent years, the ratings continue to reflect Republic Western’s historically poor underwriting and operating performance, as well as Republic Western’s limited business profile. Best said the rating outlook is based on its “expectation that improved operating results will continue to offset the historical earnings drag generated from the group’s run-off operations, and thus add to surplus in the medium term.”

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” for Benchmark Insurance Company (BIC) of Overland Park, Kansas, a wholly-owned subsidiary of TREAN Corporation. Best said the “stable outlook reflects the improvement in BIC’s risk-adjusted capitalization, driven by improved operating earnings and a significant reduction in ceded and gross underwriting leverage. The reduction in ceded and gross leverage resulted from the company’s exit from a number of pure fronting arrangements in which the company previously participated. The company’s decision in early 2007 to terminate its grocers’ insurance program, which historically had produced areas of adverse loss reserve development and subjected the company to catastrophic weather-related losses, also contributed to the improved risk-adjusted capitalization. The change in outlook also reflects the improved financial leverage and solid interest coverage ratios at Trean which remain within A.M. Best’s guidelines for its given ratings. The ratings reflect BIC’s solid risk-adjusted capitalization, improved earnings and favorable liquidity. Somewhat offsetting these positive factors are continued adverse loss reserve development on earlier accident years and questions regarding the impact on soft market conditions on the company’s plans for expansion of its specialty program business.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A’ (Excellent) from ‘A-‘ (Excellent) and the issuer credit ratings (ICR) to “a” from “a-” of the Companion Property and Casualty Group, which consists of Companion Property and Casualty Insurance Company of Columbia, SC and its wholly owned subsidiary, Companion Commercial Insurance Company. Best has also revised its rating outlook to stable from positive. The upgrades reflect the group’s “solid capitalization, improved underwriting and operating performance, more favorable reserve development trends as well as prudently managed geographic and product diversification initiatives through its ‘fee for service’ business,” Best explained. “The rating also recognizes the significant financial support and flexibility provided by its parent, Blue Cross and Blue Shield of South Carolina, which has contributed substantial amounts of capital in recent years in support of premium growth and expansion initiatives.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A++’ (Superior) and the issuer credit ratings (ICR) of “aa+” of Auto-Owners Insurance Group (AOIG) of Lansing, Mich. and its members. AOIG is comprised of five P/C companies led by Auto-Owners Insurance Company and four wholly owned subsidiaries. Best also affirmed the FSR of ‘A+’ (Superior) and ICR of “aa-” of Auto-Owners Life Insurance Company (AOLIC), a wholly owned subsidiary of Auto-Owners Insurance Company. The outlook for all ratings is stable. “The ratings reflect AOIG’s superior capitalization, strong earnings and conservative operating philosophy,” said Best. “These positive factors are partially offset by periodic adverse accident year reserve development and a concentration of business in Florida and Michigan, which exposes the group to weather-related catastrophic events and unfavorable changes in the legislative, judicial and regulatory environments.” Best also noted that “AOIG’s strong operating results during the five-year period from 2003 to 2007 were achieved as a result of its well established independent agency relationships, relatively low loss adjustment expenses, diversified product offerings and adherence to strict underwriting fundamentals. The group maintains a competitive advantage through its superior claims service and agency partnering approach, which strengthened agency loyalty

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit ratings (ICR) of “bbb-” of LEMIC Insurance Company of Baton Rouge, La., and has revised the rating outlook to stable from negative. “The ratings reflect LEMIC’s adequate capitalization, historically favorable operating performance and management’s extensive knowledge of the localized workers’ compensation markets that the company predominantly serves in the state of Louisiana,” Best explained. “The ratings also recognize the company’s strong agency relationships and management’s recent strategic initiatives implemented to restore profitability in response to generally unfavorable underwriting results in 2005, including a renewed focus on underwriting profitability, managed growth objectives and improved rate and reserve adequacy. As a result of these corrective actions taken by management, the company’s operating performance has improved in more recent years.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘A’ (Excellent) and issuer credit rating to “a-” from “a” of Delaware-based Clearwater Insurance Company. Best has also placed all of the ratings under review with negative implications due to Best’s “view of implicit and explicit support provided by its parent company, Odyssey America Reinsurance Corporation (OARC), a member of Odyssey Reinsurance Group. Best said its rating action reflects its opinion that “Clearwater is not an integral operating entity of Odyssey Reinsurance Group and that its stand-alone business position, operating performance and capitalization do not afford it the ratings of the Group. Clearwater has significant liability leverage with approximately 45 percent of its carried loss reserves as of year-end 2007 constituting asbestos and environmental liabilities (A&E). Best also noted that when it last affirmed Clearwater’s rating, it had “contemplated that OARC would be providing significant reinsurance protection on these reserves. This protection has not been forthcoming. Clearwater has incurred adverse development relating to A&E reserves of $77.4 and $68.2 million in years 2007 and 2006, respectively.” Best explained that it is “concerned that these liabilities could potentially run off adversely. While this may be an issue with Clearwater, A.M. Best does not consider these exposures to be significant to Odyssey Reinsurance Group when taken as a whole. Additionally, the company contributes nominal earnings to the group and has limited premium volume.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and the issuer credit rating (ICR) to “a-” from “bbb+” of Nodak Mutual Insurance Group of Fargo, ND. These ratings also apply to Nodak Mutual Insurance Company. Best has also revised the outlook on the ratings to stable from positive. “The ratings reflect Nodak Mutual’s solid capitalization and strong market presence as a leading personal lines carrier in North Dakota,” said Best. “The group has reported solid operating earnings driven by favorable net underwriting income and consistent net investment income, which has resulted in pre-tax operating gains in each of the last five years. These results are primarily due to a well-executed plan by management that included re-underwriting the property book of business, increasing deductibles and successful settlement of open claims. Somewhat offsetting these positive factors is the group’s heavy concentration of business in a single state, exposing it to the potential for frequent weather-related losses as well as judicial and regulatory changes. The outlook is derived from the group’s solid capitalization and consistently favorable operating performance.”

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