Ratings Recap: Medical Mutual, Eastern, Kaufmann, Seaworthy

May 15, 2009

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 Medical Mutual Insurance Company of Maine (MMIC). Best said the “revised outlook reflects MMIC’s improvement in operating profitability and its strengthened risk-adjusted capitalization. Much of the gain is attributable to current underwriting and rating procedures, conservative claims and reserve practices, increased policyholders’ surplus and improved cycle management programs. These improvements are reflected in the company’s continually progressing operating results beginning in 2005. The ratings reflect MMIC’s leadership position in providing medical professional liability insurance for physicians, groups and hospitals in Maine, Vermont and New Hampshire. In addition, the company has a tradition of high policyholder retention rates. Partially offsetting these positive rating factors is MMIC’s product and geographic concentration of risk as a mono-line and mono-state carrier. In addition, unfavorable underwriting results from 1999 through 2004 and loss reserve development related to those years continue to impact the company.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Eastern Alliance Insurance Group (EAIG) and its members. EAIG consists of Eastern Alliance Insurance Company (EAIC), Allied Eastern Indemnity Company (AEIC), Eastern Advantage Assurance Company (EAAC) and Employers Security Insurance Company (ESIC) of Indianapolis, which operate under an intercompany pooling agreement. Best also affirmed the ICR of “bbb-” of the holding company, Eastern Insurance Holdings, Inc. (EIHI). The outlook for all ratings is positive. All companies are domiciled in Lancaster, PA unless specifically noted. “The ratings recognize EAIG’s strong operating results, excellent capitalization and the financial flexibility of EIHI,” Best explained. “EAIG maintains focused underwriting initiatives, prudent reserving practices and aggressive claims management, which combined with the cultivation of a loyal agency base, have allowed the group to produce profitable growth as evidenced by combined ratios, which outperform the workers’ compensation composite average by a wide margin and internally generate surplus.” However, Best also indicated that “partially offsetting these positive factors is EAIG’s product concentration, which potentially exposes it to increased risk of regulatory or legislative changes. In addition, adverse development isolated to EIHI’s run-off specialty reinsurance segment, Eastern Re, required a reallocation of capital within the organization to strengthen the run-off operation.” In addition Best affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Eastern Life and Health Insurance Company, both with stable outlooks. “The affirmation of the ratings for Eastern Life and Health reflects EAIG’s agreement to guarantee the liabilities of Eastern Life and Health, as well as its maintenance of a favorable level of risk-adjusted capital, despite having paid large dividends recently to the parent. Eastern Life and Health writes group dental, disability, life and vision insurance products for employers located principally in the mid-Atlantic and southeastern United States,” Best explained.

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Michigan-based Kaufman Insurance Group and its member companies, USF Insurance Company and its wholly owned subsidiary, Cranbrook Insurance Company of Arlington, Texas, which operate under an intercompany pooling arrangement. Best explained that the “revised outlook reflects the group’s sustained improvement in operating profitability in recent years within a very competitive marketplace. The group’s generation of favorable underwriting results under the prevailing soft market conditions has been aided considerably by its ability to write business produced by an affiliated wholesaler, Burns & Wilcox, one of the nation’s largest, independently-owned insurance wholesalers. The flexibility to write business via the affiliated wholesaler has been a key aspect of the group’s cycle management strategy. The group also benefits from synergies with the affiliated wholesaler providing substantial expense savings that consequently augment underwriting profitability.” Best added that its “ratings of Kaufman Insurance Group reflect its solid risk-adjusted capitalization, favorable liquidity and the benefit of the continued run-off of older, unprofitable legacy programs on its present day profitability. These positive rating factors are partially offset by the group’s moderate dependence on reinsurance and the challenges in sustaining operating profitability without becoming solely dependent on business produced by Burns & Wilcox, thus limiting the group’s business profile.”

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa” of Maryland-based Seaworthy Insurance Company, both with stable outlooks. “The ratings reflect Seaworthy’s strong capitalization, sustained operating profitability indicative of management’s niche ocean marine expertise and the implicit and explicit financial support provided by the ultimate parent, Berkshire Hathaway Inc. (Berkshire Hathaway) (Omaha, NE) and a Berkshire Hathaway (re)insurance subsidiary in the form of two significant reinsurance transactions,” Best explained. “The reinsurance transactions include a loss portfolio transfer and quota share agreement between Seaworthy and National Indemnity Company (Omaha, NE), which acquired Seaworthy’s immediate parent, Boat America Corporation, in August 2007. In addition to Berkshire Hathaway’s track record of supporting its member companies, these transactions demonstrate in effect the explicit commitment provided by Berkshire Hathaway, for which Seaworthy receives rating enhancement.” Best added that the “positive rating factors are partially offset by Seaworthy’s product and revenue concentration. Despite these factors, the outlook is based upon Seaworthy’s enhanced financial flexibility, strong balance sheet and historic underwriting profitability.”

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