Ratings Roundup: Employers, Germania Mutual, Lakeview

November 18, 2009

A.M. Best Co. has affirmed the ‘A-‘ (Excellent) financial strength rating and issuer credit ratings (ICR) of “a-” of Employers Insurance Group (EMPLOYERS) and its four P/C members, Employers Insurance Company of Nevada (EICN), Calif.-based Employers Compensation Insurance Company (ECIC), Employers Preferred Insurance Company (EPIC) and Employers Assurance Company (EAC), both of Florida. Best also affirmed the ICR of “bbb-” of EMPLOYERS’ parent holding company, Employers Holdings Inc. (EHI). The outlook for all of the ratings is stable. All companies are domiciled in Reno, NV, unless otherwise specified. “The affirmation of the ratings reflects the consolidated group’s solid capitalization, strong operating performance, management’s market expertise and its conservative operating strategy,” said Best. “Additionally, the consolidated group’s favorable operating performance reflects its strict underwriting discipline, conservative investment policy and prudent capital management. EMPLOYERS also benefits from the financial flexibility provided by EHI. However, the fact that the “consolidated group’s business concentration risk, operating as a monoline workers’ compensation insurer with a high concentration of premium volume in California and Florida, which exposes its operations to changes in local regulatory, economic and competitive environments,” are offsetting factors. This is partially mitigated by the consolidated group’s continued geographic expansion and diversification efforts, which have been accelerated by its acquisition of AmCOMP Inc. (North Palm Beach, FL) in October 2008.

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Germania Mutual Group and its P/C members. Best also affirmed the FSR of ‘B++’ (Good) and ICR of “bbb” of Texas Heritage Insurance Company, an affiliate of Germania. The outlook for these ratings is stable. Best said the “affirmation of the ratings reflects Germania’s adequate risk-adjusted capitalization, its longtime experience and expertise in the Texas marketplace and its conservative investment portfolio with consistent investment income.”However, the group’s “unprofitable underwriting performance for the past two years, which is due to frequent and severe weather events, given the group’s geographic concentration of risk in Texas,” offsets the positive factors. “As a result, a downward trend in risk-adjusted capitalization has occurred, in conjunction with elevated underwriting leverage ratios,” Best continued. The ratings agency said the negative outlook also “recognizes these downward trends in underwriting performance and risk-adjusted capital position, along with the uncertainty with respect to near term improvement. In response to these trends, the group continues to explore strategies and implement changes in underwriting guidelines and reinsurance coverage designed to reduce exposure and improve its risk-adjusted capital position.” Best also noted that it has affirmed the FSR of ‘B++’ (Good) and ICR of “bbb+” of Germania Life Insurance Company with a stable outlook. All of the companies are domiciled in Brenham, Texas. The ratings of Germania Life acknowledge its continuing initiatives to expand its market profile through its affiliation with Germania and its continued strong level of risk-adjusted capital. Offsetting these strengths are Germania Life’s narrow business profile, overall modest size relative to its affiliates and weak statutory operating results due to new business strain. The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for the Germania Mutual Group and its following P/C members: Germania Farm Mutual Insurance Association; Germania Insurance Company; Germania Select Insurance Company; Germania Fire & Casualty Company.

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘B++’ (Good) and an issuer credit rating (ICR) of “bbb” to Lakeview Insurance Company with stable outlooks. Best also affirmed the FSR of ‘B++’ (Good) and the ICR of “bbb” of Lakeview’s affiliate company, Florida Family Insurance Company, also with stable outlooks. Both companies are domiciled in Bonita Springs, Florida. “The ratings reflect the operating support Lakeview receives from Florida Family, in terms of both shared infrastructure and the implementation of an inter-company reinsurance pooling agreement between the two entities,” Best explained. “In addition, Lakeview and Florida Family maintain favorable risk-adjusted capitalization, while expectations are that they will maintain moderate operating leverage measures and prudent reinsurance programs.These positive factors are somewhat offset by both companies’ inherent exposure to weather-related events, as well as potential regulatory and judicial concerns that the companies may experience as single state property insurers in Florida.”

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