Ratings Roundup: Hermitage/Kodiak, Catholic Order, Stonebridge

May 29, 2009

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating (ICR) to “a-” from “bbb+” of New York-based Hermitage Insurance Company, and has revised its outlook on the ratings to stable from positive. Best also revised the outlook to positive from stable and affirmed the FSR of ‘B++’ (Good) and ICR of “bbb+” of New Jersey-based Kodiak Insurance Company. Best explained that on February 27, 2009, Tower Group, Inc., headquartered in New York, “closed the acquisition of HIG, Inc. HIG, Inc. is a holding company that directly owns Hermitage and Kodiak. The rating actions reflect Hermitage’s participation in the Tower Group Companies (New York) pool effective April 1, 2009. Hermitage maintains supportive risk-adjusted capitalization, and its operating performance has been strong over the most recent five-year period.” Best said the revised outlook of Kodiak reflects its “expectation that Kodiak will become a member of the Tower Group Companies pool or receive affiliated reinsurance support. Kodiak’s risk-adjusted capitalization supports its current ratings, and the company’s underwriting results compare favorably to its peer group composite.”

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit rating to “bbb+” from “a-” of the Illinois-based Catholic Order of Foresters (COF). The outlook for both ratings is stable. Best said it took the rating actions due to its “concern over COF’s large decline in its unassigned funds due to investment losses and its high unrealized loss position within the investment portfolio, despite some improvement in the most recent period. As a result, COF’s risk-adjusted capitalization, when measured by Best’s Capital Adequacy Ratio (BCAR), has weakened relative to supporting its investment and insurance risks. Although COF already has recognized impairments that reduced its risk-adjusted capitalization, its level of unrealized losses may further pressure its capital and surplus position going forward.” Best also indicated that, “COF continues to maintain a high level of refund to members, which limits its internal growth in the unassigned funds. The Order enjoys a high level of annuity retention due to the loyal nature of its fraternal members and continues to record positive net gains from operations and new premium growth from product offerings to its membership.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Stonebridge Casualty Insurance Company, the P/C subsidiary of the Netherlands AEGON N.V. , with a stable outlook. “The ratings reflect Stonebridge’s strong capitalization and the financial and operational support provided by AEGON,” best explained. “Offsetting these positive factors is Stonebridge’s varied premium growth and inconsistent underwriting performance. Notwithstanding, the rating outlook reflects the generally favorable performance of Stonebridge’s core book of travel insurance business and the commitment of AEGON to maintain a level of capitalization that is supportive of the company’s current ratings.” In addition best noted that, “the primary U.S. life/health subsidiaries of AEGON experienced substantial deterioration in profitability and investment performance during 2008, and the financial results of these affiliates are likely to experience further pressure in 2009.”

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