Ratings Roundup: Rockhill, COPIC, Farmers & Mechanics

November 20, 2008

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Rockhill Insurance Group and its four pool members led by Arizona-based Rockhill Insurance Company (RIC). The outlook for all of these ratings is stable. Best noted that the rating affirmations recognize the recent announcement that State Automobile Mutual Insurance Company (SAM), the lead member of State Auto Insurance Companies Group, has entered into a definitive agreement to acquire Rockhill’s parent, Rockhill Holding Company (RHC) (See related article above). “State Auto intends to retain Rockhill’s management and associates, operating Rockhill as a stand-alone subsidiary of State Auto Mutual,” Best said. “State Auto Mutual does not plan to pool Rockhill’s operations with those of State Auto’s for the foreseeable future. The acquisition is subject to customary regulatory approvals and is expected to close in first quarter 2009.” Best added that its ratings on Rockhill “reflect its solid risk-adjusted capital position and adequate profitability during RIC’s first three years of operation. The ratings also consider the profitable track record of management, adherence to sound underwriting and pricing fundamentals, conservative balance sheet and the mature book of workers’ compensation business.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of the Denver-based COPIC Insurance Company, and has revised its outlook on the ratings to negative from stable. Best said the “affirmation of the ratings is based upon COPIC’s supportive risk-adjusted capitalization and low underwriting leverage. The company also continues to employ strong risk management programs, which have contributed to COPIC’s consistently favorable underwriting results and strong cash flow. Furthermore, COPIC maintains a leadership position in the Colorado medical professional liability market and benefits from exceptionally high policyholder retention levels. Partially offsetting these positive rating factors are COPIC’s high common stock leverage and its product and geographic concentration risk. The negative outlook reflects the decline in COPIC’s surplus position in the first nine months of 2008.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit ratings (ICR) to “a-” from “bbb+” of Farmers & Mechanics Group and its member, Farmers and Mechanics Mutual Insurance Company of West Virginia. The outlook for both ratings is stable. Best said the ratings upgrades “reflect Farmer & Mechanics’ strong operating results over the past several years and its significantly improved capital position. Farmers & Mechanics’ improved operating profitability has benefited from management’s underwriting initiatives, conservative operating philosophy, favorable weather and firm market conditions. Partially offsetting these positive rating factors is Farmers & Mechanics’ geographic concentration as a predominant property writer, which exposes earnings to localized and severe weather-related events. However, management’s risk management initiatives and sound reinsurance program have tempered these risks. Although Farmers & Mechanics’ experienced sizeable unrealized capital losses in its equity portfolio in 2008, equity leverage is conservative and the bond portfolio remains very high in quality.”

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