Ratings: Lincoln, Grain Dealers, National States, Hanover, Atradius, WRM America, Michigan Commercial

December 9, 2009

Standard & Poor’s Ratings Services has assigned its ‘A-‘ issue credit rating to Lincoln National Corp.’s (LNC) $300 million issuance of senior notes. S&P also affirmed its ‘AA-‘ counterparty credit and financial strength ratings on LNC’s life insurance operations (Lincoln) and its ‘A-‘ counterparty credit rating on LNC. The outlook on the ratings remains stable. “The $300 million in 10-year senior notes will be used to prefund $250 million in debt that matures in February 2010 and further demonstrates LNC’s financial flexibility and robust liquidity profile,” explained credit analyst Jeff Watson. S&P noted that “over the past six months, LNC has raised a substantial amount of cash, from both external and internal sources. Following this note issuance, LNC will have raised more than $2.4 billion in fresh external capital in 2009, including $800 million in traditional debt, $690 million in equity capital, and $950 million in proceeds from its participation in the U.S. Treasury’s Capital Purchase Program. In addition, the company has announced the sale of both its U.K. insurance operations and its asset management division, which, collectively, will raise an additional $650 million in cash. We view this sizable capital infusion favorably, which improves our view of LNC’s liquidity profile and demonstrated access to several sources of funding. We expect LNC to manage its cash position at conservative levels in the near term. The excess cash gives the holding company a cushion to meet near-term obligations and provides an important contingency buffer for its life operations, in the event that global equity or credit markets deteriorate further.”

A.M. Best Co. has upgraded the financial strength rating to ‘B+’ (Good) from ‘B’ (Fair) and issuer credit rating to “bbb-” from “bb” and has removed the ratings from under review with developing implications for Indiana-based Grain Dealers Mutual Insurance Company. Best has assigned a positive outlook to both ratings. “These rating actions follow the announcement that Grain Dealers and NGM Insurance Company (NGM), the lead carrier of the Main Street America Group (Main Street) (both of Jacksonville, FL), have executed an affiliation agreement following the approval by the Indiana Department of Insurance,” Best explained. “The ratings and outlook for Main Street and its members are unchanged.” Best added that the upgrades reflect the “rating enhancement afforded Grain Dealers, based on NGM’s financial strength. Partially offsetting rating factors is Grain Dealers’ deteriorated capital position, diminished risk-adjusted capitalization and its history of volatile operating performance.” Best said the rating outlook reflects NGM’s plan to reinsure 100 percent of Grain Dealers’ business, including all prior liabilities into NGM, mitigating Best’s concerns regarding Grain Dealers’ diminished capitalization and history of unfavorable operating results.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘C-‘ (Weak) from ‘C++’ (Marginal) and issuer credit rating (ICR) to “cc” from “b” of St. Louis-based National States Insurance Company, and has assigned both ratings a negative outlook. Best subsequently withdrew the ratings and assigned an NR-4 to the FSR and an “nr” to the ICR in response to company management’s request to be removed from its interactive rating process. Best explained that the “downgrades reflect National States’ sizeable net operating loss incurred through third quarter 2009 and marginal risk-based capital position. The net loss resulted primarily from continuing unfavorable underwriting experience in the company’s Florida home health care business. National States, a small individual accident and health/life insurance carrier, primarily markets Medicare supplement products and manages a closed block of long-term care business. Best believes the company will be challenged to return to profitability in the short term, given the operating challenges of the long-term care business and the increasingly competitive Medicare supplement market.”

A.M. Best Co. has commented that the ratings and outlook of The Hanover Insurance Group, Inc. (THG) and its P/C insurance members remain unchanged following the announcement that THG has entered into a definitive agreement to purchase the renewal rights to parts of a book of business from OneBeacon Insurance Group. The agreement covers all applicable business with policies effective as of January 1, 2010 and beyond. “The book of business is small commercial and middle market, with the majority written by agents that already have a relationship with THG,” Best explained. “The transaction will have a modest impact on premium leverage, and A.M. Best anticipates the overall operational impact also will be modest given THG’s experience with previous acquisitions. In addition, THG has produced favorable operating earnings in recent years and maintains excellent risk-adjusted capitalization.”

A.M. Best Co. has downgraded the financial strength rating to ‘A-‘ (Excellent) from ‘A ‘ (Excellent) and issuer credit ratings to “a-” from “a” of Atradius Trade Credit Insurance, Inc. (ATCI) of Baltimore, MD and its wholly owned and 100 percent reinsured subsidiary, Atradius Trade Credit Insurance Company, New Jersey, (ATCI-NJ) (West Trenton, NJ). and has revised the outlook to negative from stable. The rating actions reflect the “adverse effects of the credit crisis, including materially weakened operating results and the substantial drop in ATCI’s still strong risk-adjusted capitalization, driven by high frequency of losses, reduced premiums, adverse development and lower ceding commissions,” said Best. “The rating actions also reflect the material dependence of ATCI on its group, which continues to face challenges due to the global economic crisis. The group is comprised of owner Grupo Catalana Occidente S.A. (GCO) (Spain), Grupo Compania Espanola Credito Y Caucion, S.L. (Grupo CYC) (Spain), Atradius N.V. (Netherlands) and affiliates.” In addition, Best noted that the credit insurance industry is highly correlated to bankruptcies and default rates, “whereby ATCI’s volatility of operating results in this credit crisis has been only partially mitigated by ATCI’s risk management and high utilization of reinsurance (77.5 percent ceded).” As positive factors, Best cited “management’s dynamic risk reduction efforts, which considerably reduced total potential exposure; leading market position in the trade credit industry; still strong risk-adjusted capitalization; strong pre-crisis operating profitability; and financial flexibility provided by the group.” The revised outlook reflects Best’s concern of the continued pressure on underwriting profitability and surplus related to the constraining effects of a potentially protracted recession. ATCI is a wholly owned subsidiary of Atradius N.V., of which 64 percent is owned by Grupo CYC, which is 70 percent owned by GCO.

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of WRM America Indemnity Company (WRMAI) of Uniondale, NY, both with stable outlooks. Best said the ratings reflect WRMAI’s “solid capitalization, experienced management team and strong claim and risk management programs. However, “the execution risk associated with the expansion of an existing single-state platform into additional states within the United States” is an offsetting factor. Additional rating factors taken into consideration are the company’s fundamental business strategies, which include providing stable insurance coverage in its niche education market, coupled with a high quality of service for its insureds. Best said WRMAI has met its “established requirements for new company formations. The company’s ratings are a reflection of its ability to meet A.M. Best’s strict capitalization requirements, which mandate a more conservative level of risk-based capital to support its ratings.” In addition Best indicated that it would “closely monitor the quarterly performance of WRMAI. Any material negative deviation from the business plan in terms of management, earnings, capitalization or risk profile could result in negative rating pressure.

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Michigan Commercial Insurance Mutual (MCIM). Best said it revised the outlook to reflect “the significant deterioration in MCIM’s operating performance driven by increased underwriting losses, which are attributable to diversification initiatives beyond Michigan; an increase in claim frequency and large loss activity; and the continued execution risk associated with the company’s geographical expansion plans. Despite management’s initiatives to diversify into lower hazard classes of business and improve results, MCIM will be challenged over the near term to meet projections given the competitive market conditions and economic impact on its core business segments.” However, best also noted that “MCIM’s ratings are supported by the solid level of capitalization, generally favorable reserve development and focused business strategy. Management has demonstrated significant progress in diversifying into non-construction related risks in recent years in order to mitigate the potential for claims severity. Historical results also have benefitted from the application of comprehensive safety inspections, policyholder education and aggressive claims management.”

Was this article valuable?

Here are more articles you may enjoy.