Ratings Recap: QBE (US), Triangle, Zurich (US) Subsidiaries

July 22, 2009

Standard & Poor’s Ratings Services has assigned its ‘A+’ counterparty credit and financial strength ratings to QBE Specialty Insurance Co. (QSIC) with a stable outlook. “We view QSIC to be a core member of the QBE Group,” explained credit analyst Siddhartha Ghosh. “As a result, we’ve assigned it the same ratings as the other core members of the QBE group, as per our group rating methodology.” QSIC is in the specialty segment of QBE group’s U.S. operations (collectively, QBE Americas) and is licensed in all 50 states. The company operates as a nonadmitted commercial P/C company, offering multiline excess and surplus insurance products that it distributes through independent wholesalers. S&P said the “ratings reflect QBE Americas’ strong competitive position in the specialty program business, strong operating performance, and very strong consolidated capital adequacy. However, the group’s business dependence on outsourcing, lower profit margin in the near term, and QBE Group’s strategy of rapid growth through acquisition partially mitigate these favorable factors. The outlook on QSIC parallels that of its parent, QBE Group, because of its core status to the parent.” Commenting on the ratings outlook, S&P said it’s based on the “expectation that QBE Americas will maintain disciplined underwriting and strong cycle management through strong group ERM and local coordination. S&P also “expects QBE Americas’ consolidated statutory combined ratio to be less than 100 percent and its pretax ROR to be 8 percent-10 percent in the next two years. In addition, over this same period, we expect the group’s consolidated capital adequacy to remain very strong.”

A.M. Best
Co. has downgraded the issuer credit rating to “bbb” from “bbb+” and affirmed the financial strength rating of ‘B++’ (Good) of Oklahoma-based Triangle Insurance Company, Inc., and has revised its outlook on both of the ratings to negative from stable. “These rating actions reflect the volatility in Triangle’s earnings results caused by storm losses in three of the last five years, which in turn have required surplus contributions from its parent, Triangle Cooperative Service Company,” Best explained. “While these surplus contributions were funded by increased bank debt at Triangle Cooperative, financial leverage at the parent is a reasonable 28 percent (debt-to-total tangible capital), with strong cash flow coverage ratios but thin earnings coverage ratios.” However, Best also cited “Triangle’s adequate capitalization, long-term acceptable underwriting and operating performance and strong relationship with insureds,” as more positive factors. They “are derived from Triangle’s local market presence and expertise in writing coverages for members of Triangle Cooperative, which results in high insured retention rates,” Best noted. The negative outlook reflects Best’s concern that “surplus remains vulnerable to natural and manmade catastrophe losses, despite being somewhat mitigated by a new 25 percent quota share treaty in Triangle’s retention layer.”

A.M. Best Co. has withdrawn the financial strength ratings (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of Maine Bonding and Casualty Company, Maryland Insurance Company and National Standard Insurance Company, both of Dallas, Texas. An NR-3 (Rating Procedure Inapplicable) has been assigned to the FSRs and an “nr” has been assigned to the ICRs. Best said the “rating action follows the execution of a reinsurance assumption and novation agreement in which all of the gross liabilities of the three companies were assumed by Zurich American Insurance Company (ZAIC) (headquartered in Schaumberg, IL), as if ZAIC had issued the underlying policies to the three companies’ policyholders. Prior to the execution of this agreement, all of the companies’ premiums and liabilities were ceded to ZAIC under an inter-company pooling agreement.” In addition Best noted: “ZAIC is the lead company of the U.S. operations for Zurich Financial Services (ZFS) (Switzerland). The consolidated operations of the U.S. operations (Zurich U.S.) contribute approximately 40 percent of the worldwide property/casualty premiums to ZFS’ worldwide operations. ZAIC either directly or indirectly reinsures 100 percent of the current 14 domestic pool members via its pooling agreement. The ratings of the fourteen remaining pool members of Zurich U.S. are unaffected.”

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