Ratings Recap: Am. Safety, ProAssurance, AMComp, Affirmative, WRM America

November 5, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of American Safety Insurance Group (ASI). Best also affirmed the ICR of “bbb” of ASI’s parent company, Bermuda-based American Safety Insurance Holdings Ltd. The outlook for all of the ratings is stable. Best said: “The ratings are based on the consolidated financial condition and operating performance of the following entities comprising ASI: American Safety Casualty Insurance Company, American Safety Indemnity Company (Oklahoma), American Safety Risk Retention Group, Inc. (Vermont) and American Safety Reinsurance, Limited (Hamilton, Bermuda). The ratings reflect ASI’s excellent capitalization, solid overall operating results, and effective management of its insurance operations. The ratings also recognize ASI’s underwriting expertise and discipline in its niche markets with customized risk management programs and loss control services.”

Standard & Poor’s Ratings Services has affirmed its ‘BBB-‘ counterparty credit rating on ProAssurance Corp. (PRA) following the company’s announcement that it will acquire PICA Group (PICA), a leading mutual provider of professional liability to doctors of podiatric medicine. The outlook remains stable. “We believe this acquisition of PICA is neutral to the rating on PRA,” explained credit analyst Damien Magarelli. S&P also noted that “PRA will be paying $120 million in holding company cash to PICA’s current and certain former policyholders in accordance with the approved plan of demutualization of PICA. PRA also will fund a $15 million pool of premium credits to be awarded to eligible PICA policyholders for three years starting in 2010.” No additional debt will be issued. “We expect this acquisition to close in the first quarter of 2009 and to further diversify PRA’s current business profile and broaden its geographic coverage,” Magarelli added. PICA’s core business will continue to operate on a stand-alone basis, except reinsurance and investments likely will be consolidated within PRA. In addition, we expect PICA’s management team to remain stable after the transaction.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Employers Insurance Group and its two P/C pooling members, Employers Insurance Company of Nevada (EICN) and Employers Compensation Insurance Company (ECIC). Best also affirmed the ICR of “bbb-” of EMPLOYERS’ parent holding company, Employers Holdings, Inc. (EHI) of Reno, Nev.). The outlook for all ratings has been revised to stable from positive. Best’s rating actions follow the acquisition of AmCOMP Incorporated and its subsidiaries, AmCOMP Preferred Insurance Company and AmCOMP Assurance Corporation, by EHI on October 31, 2008. “Following approval from the proper regulatory authorities, AmCOMP Preferred and AmCOMP Assurance will participate in an intercompany pooling agreement with EICN and ECIC,” Best noted. “The affirmation of the ratings reflect the consolidated group’s solid capitalization, strong operating performance and the prospective benefits from the integration of the operating entities of AmCOMP, which expands EMPLOYERS’ geographic footprint. The consolidated group’s favorable operating results reflect its strict underwriting discipline, conservative investment policy and prudent capital management. The consolidated group also benefits from the financial flexibility provided by its publicly traded parent, EHI. The revised outlook reflects the integration and execution risk of merging two companies with distinctive operating strategies.”

Standard & Poor’s Ratings Services has affirmed its ‘BB’ counterparty credit and financial strength ratings on Affirmative Insurance Co. and Insura Property & Casualty Insurance Co. (collectively referred to as Affirmative). S&P also lowered its counterparty credit rating on Affirmative Insurance Holdings Inc.(AFFM) to ‘B-‘ from ‘B’, and stated that the outlook on all of the companies remains negative. “The downgrade is a result of an adjustment to nonstandard notching from standard notching between the ratings on the holding company and the operating companies,” explained credit analyst Tom Thun. “The rating action reflects our belief that the company’s financial flexibility is weaker than historical levels because of limited access to capital markets and increased earnings pressure on its operating companies.” S&P noted that the “”company paid down about $60 million of its $200 million in debt through June 30, 2008. Nevertheless, AFFM’s debt to capital remains extremely high at about 40 percent, and any changes in its operating companies’ ability to provide dividends could hinder the holding company’s ability to service its debt in the next year or two. The insurer financial strength ratings on Affirmative reflect the companies’ good management team, unique market niche, and adequate earnings for the rating. Partially offsetting these positive factors are the low barriers to entry in Affirmative’s chosen market, competitive and economic pressures, and the group’s exposure to integration risk because of prior acquisitions.”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to New York-based WRM America Indemnity Company (WRMAI) with stable outlooks. “The ratings reflect WRMAI’s solid capitalization, experienced management team and strong claim and risk management programs,” said Best. “Partially offsetting these positive rating factors is the execution risk associated with the expansion of an existing single-state platform into additional states within the United States. Additional factors taken into consideration are WRMAI’s fundamental business strategies, which include providing stable insurance coverage in its niche education market coupled with a high quality of service for its insureds.”

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