Ratings: Mercer, Hallmark, Auto Club, Southern States, Meadowbrook, Iron Horse, Courtesy, Alabama Muni, Am. Millers

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Mercer Insurance Group of Pennington, NJ. The ratings apply to the following four inter-company reinsurance pool members: Mercer Insurance Company (Lock Haven, PA), Mercer Insurance Company of New Jersey, Inc., Franklin Insurance Company (Lock Haven, PA) and Financial Pacific Insurance Company (Rocklin, CA). The outlook for all of these ratings is stable. Best has also assigned an ICR of “bbb” to Mercer Insurance Group, Inc. with a stable outlook. “The ratings reflect Mercer’s excellent capitalization, solid operating performance driven by low loss ratios and conservative risk management approach to underwriting and investment risk,” said Best. “These positive rating factors are partially offset by Mercer’s higher expense structure, driven by its conservative underwriting approach, the risks associated with its California building contractor’s book of business (construction defect) and somewhat volatile accident year reserve development.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Hallmark Insurance Group of Fort Worth, Texas and its operating members. Best has also affirmed the ICR of “bbb-” of the group’s holding company parent, Hallmark Financial Services, Inc. The outlook for all ratings is stable. Best said: “The affirmation of the ratings reflects Hallmark Group’s excellent risk-adjusted capitalization, favorable operating performance and financial flexibility afforded by Hallmark Financial. Furthermore, the ratings consider the organic surplus growth in recent years, as well as prior year significant equity contributions by Hallmark Financial to support the group’s growth initiatives. The acquisitions of various agency production sources by Hallmark Financial have resulted in a greater geographic and product spread of risk for the group. These rating factors are partially offset by Hallmark Group’s above average net underwriting leverage and continued execution risk associated with the development of various parent company acquisitions, as well as geographic and product expansion initiatives.”

A.M. Best Co. has downgraded the issuer credit ratings (ICR) to “a” from “a+” and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) of the three pooled P/C insurance companies with The Auto Club Group (ACG) – Auto Club Insurance Association (90 percent), MemberSelect Insurance Company (5 percent) and Auto Club Group Insurance Company (5 percent). All of these companies are domiciled in Dearborn Mich. Best also affirmed the FSR of ‘A’ (Excellent) and ICR of “a” of Auto Club Property-Casualty Insurance Company (ACPCIC) of Bettendorf, Iowa. The outlook for all of the ratings is stable. Best explained that the ICR downgrades” reflect ACG’s recent unfavorable underwriting performance, during which over the last three years competition has increased in ACG’s territories, most specifically its largest territory, Michigan. Coinciding with the generally softened market conditions, ACG incurred inflated underwriting expenses as the group researched and implemented a new policy administration system, first in their new territories and then in Michigan, which will be completed by the end of 2008. These circumstances along with ACG’s prudent decision not to compete on rates until the new systems were in place caused a general decline in premium volume and an increase in combined ratios. However, Best also noted: “Offsetting these negatives are ACG’s consistently favorable operating performance, excellent capitalization and well-established position as a personal lines market leader in Michigan, as well as the benefits derived from offering insurance products to American Automobile Association (AAA) members. All of these strengths, give ACG the ability to undergo the aforementioned system changes while moderately increasing surplus and expanding its market profile.”

A.M. Best Co. has revised the rating outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-“of Virginia-based Southern States Insurance Exchange (SSIE/the Exchange). “The rating reflects SSIE’s excellent balance sheet strength, history of operating profitability and proven underwriting expertise in its niche market,” said Best. “Partially offsetting these positive rating factors is SSIE’s limited market profile as it provides coverage to a specific population of customers relating to the agricultural industry. Best also noted: “The Exchange derives approximately one-half of its in-force premiums from its founder and largest subscriber, Southern States Cooperative (SSC) and approximately 48 percent of capital and surplus consists of the subscriber savings accounts of SSC. SSC and SSIE have been successfully aligned business affiliates since inception, which spans more than a half century. The attorney-in-fact operating the Exchange is wholly owned by SSC, as is the independent insurance agency that represents the Exchange on a fairly exclusive basis.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Meadowbrook Insurance Group and its members. Best also affirmed the ICR of “bbb-” of Meadowbrook’s publicly-traded parent company, Meadowbrook Insurance Group, Inc. (MIGI) of Southfield, Mich. The outlook for all of the ratings is stable. “The ratings,” said Best, “reflect Meadowbrook’s continued, favorable underwriting and operating performance, solid capitalization and management’s expertise in the alternative risk market. Meadowbrook’s ratings recognize its significant improvement in earnings during the past four years, which has steadily improved capitalization. Best also indicated: “MIGI is a full service risk management organization, which focuses on niche or specialty program business and risk management solutions for agents, brokers, professional trade associations, pools, trusts and small to medium-sized businesses. The company offers solutions on a managed basis, a risk sharing basis or a fully insured basis in response to specific market opportunities.”

A.M. Best Co. has assigned an issuer credit rating of “a+” and affirmed the financial strength rating of ‘A’ (Excellent) of Vermont captive insurer Iron Horse Insurance Company with stable outlooks for both ratings. “The ratings reflect Iron Horse’s superior risk-adjusted capitalization, experienced management team and the role it will play as a captive insurance company for Chevron Corporation.” However, Best noted that “the company’s high net loss exposures as the coverages provided tend to result in claims that are characterized as low frequency but high severity,” should be considered as offsetting factors.

A.M. Best Co. has revised the rating outlook to positive from stable and affirmed the financial strength rating of ‘A’ (Excellent) for Florida’s Courtesy Insurance Company. Best has also assigned an issuer credit rating of “a+” to Courtesy with a positive outlook. “The ratings and outlook reflect Courtesy’s solid capitalization, excellent historical operating performance and the additional financial benefits derived from its affiliation with JM Family Enterprises, Inc (JM Family),” Best explained. “These rating factors are supported by Courtesy’s favorable pre-tax operating returns, which have benefited from expense controls, pricing discipline and management’s niche market expertise in the auto warranty business. These factors are furthered by the strong balance sheet of the parent company, JM Family, a diversified automotive company with $12.2 billion in revenue and ranked by Forbes as the 22nd-largest privately held company in the United States.

A.M. Best Co. has revised the outlook to negative from stable and has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” for Alabama Municipal Insurance Corporation (AMIC). Best said the “negative outlook reflects AMIC’s concentration in mortgage-backed and other asset-backed securities, which resulted in significant realized and unrealized capital losses through first quarter 2008 and a modest decline in surplus and risk-adjusted capitalization. While management expects underwriting results to be sound in 2008 and has taken steps to reduce the volatility in its investment portfolio, the potential for further reductions in capital should AMIC sustain additional investment losses or experience a large shock loss is elevated.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit rating (ICR) to “bbb+” from “a-“of Pennsylvania-based American Millers Insurance Company. Best explained that American Millers had been formerly “group rated with Penn Millers Insurance Company; however, due to American Millers modest business profile, Best said it no longer meets group rating criteria. “The rating of American Millers reflects its strong capitalization and operating performance in addition to the support it receives from its parent, Penn Millers,” said best. “Offsetting these positive rating factors is the company’s modest business profile and dependence on Penn Millers to generate all of its business. Best added that, “in conjunction with downgrading American Millers’ ratings, Penn Millers’ FSR of ‘A-‘ (Excellent) and ICR of “a-” have been affirmed. The outlook for all ratings is stable. All primary business is written through Penn Millers with American Millers providing excess of loss reinsurance to the parent company for property losses above $450,000 up to $500,000.”