Ratings Roundup: Beazley, Westminster, Waco, Alliance Mutual

November 26, 2008

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Beazley Insurance Company, Inc. (BICI) of Farmington, Conn. with stable outlooks. Best noted that the “ratings reflect the significant quota share reinsurance support provided to BICI ” by the UK based Beazley Group’s “Lloyd’s Syndicates 623 and 2623 and the credit risk protection provided by Beazley. Best also indicated that the ratings reflect BICI’s strong risk-adjusted capitalization, “derived from low underwriting leverage and a sound business plan, which includes full operational integration into Beazley.” However Best also said: “These rating strengths are partially offset by the considerable challenges inherent in the operation of any company during its early stages including the execution risk related to its business plan as it grows its business while competing with other more established competitors in certain markets.” Best explained that BICI’s primary focus is on specialty lines business for private enterprise and middle market risks, which “are not generally underwritten at Lloyd’s due to distribution constraints. BICI has sharpened its focus even further in 2008, as evidenced by the decision to cease underwriting new cargo and inland marine business while seeking to further penetrate the specialty market, concentrating on directors’ and officers’ liability, employment practices liability, errors and omissions and
commercial property.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Maryland-based Westminster American Insurance Company. Best said the ratings affirmation “reflects Westminster’s favorable risk-adjusted capitalization and improved operating performance.” Best explained that the Company’s “capital position is derived from the demutualization of the former Mutual Fire Insurance Company of Carroll County and subsequent capital contribution from the new owner. The positive outlook reflects A.M. Best’s expectation that Westminster’s improved operating results and level of capitalization will continue to trend favorably as management implements product and geographical expansion.” As partially offsetting factors, Best noted “Westminster’s geographic concentration of property risks in Maryland and Washington D.C., elevated expense structure and historically poor underwriting results. However best said that the “new management team, which has been overseeing Westminster’s operations since 2005, continues to implement corrective actions, which have resulted in improved operating performance and surplus growth. Additionally, the management team is focused on growing its commercial book of business and, as such, continues to enhance the company’s product offerings and technology capabilities.”

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘B+’ (Good) and an issuer credit rating (ICR) of “bbb-” to Atlanta-based Waco Fire and Casualty Insurance Company, both with stable outlooks. Best said the “ratings and outlook reflect Waco’s solid risk-adjusted capitalization and management’s near-term projections, which call for continued modest operating profits and capital accumulation, and sound liquidity. The ratings also reflect the expectation that management will operate in the manner that is consistent with the business plan presented to A.M. Best.” Positive rating factors, however, “are partially offset by the execution risk of successfully implementing management’s business plan, especially during a time of increasing competitive pressures, and narrow geographic and product spread of risk (exposing the group to changes in regulatory, legislative and competitive landscape) as well as the company’s elevated common stock leverage,” said Best. “Waco, a subsidiary of Watkins Associated Industries, Inc., is principally engaged in providing insurance coverages to associated entities, including commercial auto liability, auto physical damage, cargo, employment practices liability, general liability, bobtail and renters’ insurance. In addition, through its relationship with a managing general agency, the company began providing private passenger auto coverage to non-standard clients within the State of Georgia in 2007.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B+’ (Good) and the issuer credit rating (ICR) of “bbb-“of the Greensboro, NC-based Alliance Mutual Insurance Company, but has revised its outlook on the ratings to negative from stable. “The ratings,” Best said, “reflect Alliance Mutual’s low underwriting leverage, long-standing local market presence and aggressive improvements to its underwriting fundamentals.” However Best noted that these strengths “are severely tempered by the continued erosion of the company’s capital base driven by weak underwriting performance, an elevated expense structure, recent reserve strengthening and compounded by a business concentration in North Carolina, which makes the company susceptible to regulatory, economic, and judicial changes, as well as potential earnings and surplus setbacks from local storms and hurricanes. These factors support the company’s current outlook. Subsequently, however, Best said that it has “withdrawn both ratings at the company’s request and assigned a category NR-4 to the FSR and an “nr” to the ICR.”

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