Ratings Roundup: Agri-Business, Vantapro, Sooner, Intrepid, Columbia

June 19, 2008

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating (ICR) to “a-” from “bbb” of American Agri-Business Insurance Company (AA-BIC), and has removed them from under review with positive implications and assigned a stable outlook. “The ratings reflect AA-BIC’s strong capitalization and reinsurance arrangements, as well as management’s extensive experience with the federally subsidized multiple peril crop insurance (MPCI) program,” Best explained. “Additionally, the ratings recognize the financial flexibility and overall support provided to the company by its owner, Endurance US Holdings Corporation,” a subsidiary of Bermuda-based Endurance Specialty Holdings Ltd., a publicly traded company. “Somewhat offsetting these positive rating factors are the high utilization of reinsurance, resulting in an elevated leverage of ceded premiums and losses to surplus,” Best added. “This subjects AA-BIC to above average dependence on reinsurance; however, this is somewhat mitigated by the fact that the majority of AA-BIC’s non-governmental reinsurance capacity is provided by Endurance.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘A’ (Excellent) and issuer credit rating (ICR) to “a-” from “a” of Chicago-based Vantapro Specialty Insurance Company (formerly Midway Insurance Company of Illinois). Best has also placed the ratings under review with negative implications. The rating agency explained that “Vantapro’s ratings were based upon a 100 percent reinsurance cession to its former parent, Fireman’s Fund Insurance Company (FFIC). However, upon the acquisition of Midway by Darwin National Assurance Company (DNA), the lead member of the Darwin Group (rated ‘A-‘ (Excellent)), “FFIC reinsured and indemnified Midway from all remaining liabilities and obligations as of November 30, 2007,” Best explained. “Midway had not written new and renewal premiums since 2002. In February 2008, Midway was renamed Vantapro Specialty Insurance Company. The management of Delaware-based Darwin Professional Underwriters, Inc., the publicly traded parent of Darwin, has filed for regulatory approval to redomesticate Vantapro to Arkansas from Illinois, and shortly thereafter, management plans to implement a reinsurance agreement between DNA and Vantapro, similar to the reinsurance agreement currently in place between DNA and its other wholly owned subsidiary, Darwin Select Insurance Company.” Best indicated that once this program is in place it will “likely affirm and remove the ratings from under review.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Sooner Insurance Company, captive insurer for ConocoPhillips, based in Vermont. The outlook for both ratings is stable. “These ratings are based on Sooner’s excellent capitalization, history of profitable operating results” and the position it holds as a captive. Best also said the ratings “consider the level of commitment on the part of its parent, whose management incorporates Sooner as a core element in its overall risk management program.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Michigan-based Intrepid Insurance Company with stable outlooks. “The ratings reflect Intrepid’s solid capitalization, favorable loss ratios, effective management of exposures and strong synergies with its ultimate parent, Daimler AG,” said Best. “Partially offsetting these positive factors is the company’s narrow business focus and dependency on its ultimate parent’s business niche. Furthermore, its business underwriting results are subject to volatility due to weather-related events, particularly hail and hurricane-related events.”

A.M. Best Co. has revised the outlook to stable from positive and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Columbia Insurance Group and its members. Best explained that the “affirmations reflect Columbia’s solid risk-adjusted capitalization, favorable operating performance and long-standing market presence. The group’s sustained operating profitability has been attributed to management’s underwriting discipline, improved pricing, increased use of loss controls as well as insurance to value efforts and improved claim operations. Despite significant storm activity in 2008, primarily in Arkansas and Missouri, the group’s non-storm loss experience remains favorable.” Best said it “anticipates continuation of Columbia’s favorable operating results due to technology improvements, which have reduced operating costs and enhanced claim operations. Additional factors contributing to Columbia’s ongoing future success include its local market expertise, established agency relationships and increased product and geographic diversification.” However, Best also noted that “Columbia’s business concentration in the Midwest, which exposes its earnings to catastrophe losses stemming from the New Madrid fault line as well as wind, hail and tornadoes,” should be taken into account as offsetting factors. “The revised outlook reflects continued soft market conditions, potentially increased weather-related losses and execution risks related to the group’s revised business plan.”

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