Ratings: Hartford, Standard Casualty, American Road, Lawyers Mutual

October 23, 2008

Standard & Poor’s Ratings Services has assigned its ‘BBB+’ preferred stock-level rating on Hartford Financial Services Group’s $1.75 billion 10 percent fixed-to-floating rate junior subordinated debentures. “Because the notes permit the deferral of interest for at least ten years without giving rise to an event of default, and because they have a subordinated status in the capital structure, we classify these notes as having intermediate equity content,” explained credit analyst Robert Hafner. S&P added: “As such, they are eligible for full equity credit until they are within 20 years of scheduled maturity and no equity credit thereafter. These notes are a portion of the total investment that HIG announced Allianz SE agreed to make on Oct. 6, 2008. The balance of the $2.5 billion investment by Allianz SE is in the form of common stock. The investment was arranged to quickly reestablish a very significant capital redundancy that was materially reduced by the investment losses, which HIG disclosed in the same announcement.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and the issuer credit rating (ICR) of “a-” of Texas-based Standard Casualty Company, both with stable outlooks. Standard Casualty is a subsidiary of Palm Harbor Homes, a manufacturer and marketer of factory built homes. Best said the “ratings reflect Standard Casualty’s favorable risk-adjusted capitalization despite dividend payments, which have occurred to supplement Palm Harbor’s operations and capital management strategies. In addition, the ratings contemplate Standard Casualty’s profitable operating performance and solid liquidity position. These positive rating factors are somewhat offset by Standard Casualty’s elevated underwriting expense ratio, limited product offering and tight geographic concentration of risk.”

A.M. Best Co. has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and issuer credit rating to “bbb-” from “bbb” of The American Road Insurance Company (TARIC), of Dearborn, Mich. In addition Best said the outlook for both ratings is negative. Best noted: “TARIC’s capitalization and operating performance has been and continues to be robust.” However, its ratings were the result of its immediate parent, Ford Motor Credit Company LLC (Ford Credit) and ultimate parent, Ford Motor Company’s operating challenges, “which act as a constraint on TARIC’s rating profile. The continuing solvency pressure on these entities has prompted the downgrading of the ratings.” Best added: “The”ratings reflect TARIC’s excellent capitalization level, history of positive operating performance, conservative reserve practices and effective management of exposures. Over the past five years, the after-tax five-year return on surplus has averaged 18.2 percent, while capital and surplus levels have grown at a rate of 24.6 percent through the accumulation of net profits.”

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Lawyers Mutual Insurance Company of Kentucky (LMICK). Best explained that the “revised outlook reflects LMICK’s improvement in operating profitability and strengthened risk-adjusted capitalization. Much of the improvement is attributable to increased policyholders’ surplus, conservative claims and investment practices, improved underwriting procedures and above average return on investments. These improvements are reflected in the company’s continually progressing operating results since mid-year 2006. The ratings reflect LMICK’s leadership position in providing legal professional liability insurance for sole practitioners and smaller size law firms in Kentucky, along with a traditionally high policyholder retention rate.”

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