Ratings: Catholic Knights, Direct General, Progressive Motor, Prime, Pathfinder, National Contractors, Seven Seas

A.M. Best Co. has downgraded the financial strength rating to ‘B’ (Fair) from ‘B+’ (Good) and issuer credit rating to “bb+” from “bbb-” of Catholic Knights of Milwaukee, Wisc. And has placed the ratings under review with negative implications. “These rating actions reflect the Society’s decline in its unassigned funds since year-end 2008 due to investment losses, both realized and unrealized,” Best explained. “As a result, the Society’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), continues to be weak.” Best also noted that Catholic Knights experienced a large increase in below-investment grade securities in 2009, due primarily to credit migration in its residential mortgage-backed securities portfolio, which may further weaken the Society’s balance sheet position and its unassigned surplus funds going forward. However, these securities may be subject to re-evaluation before the end of 2009, and the Society has the intention and ability to hold these securities over the long term. In order to lower volatility and bolster its unassigned funds, the Society has reduced its exposure to equities and is pursuing a capital improvement plan that includes the addition of capital from external sources. The rating also recognizes that Catholic Knights has reported consistently positive statutory operating results over the past five years while enjoying a long-standing fraternal presence in the Roman Catholic community.” In addition Best said: “Catholic Knights has signed a letter of intent to merge with Catholic Family Life Insurance (Shorewood, WI) and intends to complete the merger in second quarter 2010. The combination would result in an increased membership base and opportunities for fraternal synergies. Furthermore, Catholic Knights has a successful record of mergers with other Catholic fraternal organizations, thus gaining membership, expanding financial capacity and presenting another avenue for membership growth. However, the merger also will add a higher level of commercial mortgage loans to Catholic Knights’ balance sheet and will initially result in merger-related charges, with anticipated savings from economies of scale coming in the following year.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of B (Fair) and issuer credit ratings (ICR) of “bb+” of Direct General Corporation’s lead operating company, Indianapolis-based Direct General Insurance Company (DGIC) and its wholly-owned subsidiary, Direct General Insurance Company of Mississippi, as well as its affiliate, Direct Insurance Company of Nashville. In addition best affirmed the FSRs of’ B’ (Fair) and upgraded the ICRs to “bb+” from “bb” of Direct General’s remaining property/casualty affiliates, Direct General Insurance Company of Louisiana and Direct National Insurance Company of Little Rock. The outlook for all of the ratings is stable. The rating affirmations are reflective of “Direct General’s elevated underwriting leverage and limited business profile,” best explained. “These negative rating factors are partially offset by its adequate risk-adjusted capitalization, low cost operations and established position in the non-standard automobile marketplace. The ICR upgrades of Direct General Insurance Company of Louisiana and Direct National Insurance Company reflect rating enhancement due to their strategic importance to Direct General’s overall business strategy and profile.” Best also said it “acknowledges that these companies are fully integrated into the organization’s strategic plan and operate under the same management, business profile, technology and investment platform.” In addition Best affirmed the FSR of ‘B’ (Fair) and ICR of “bb+” of Direct General Life Insurance Company with stable outlooks. The ratings of DGLIC “recognize its mono-line term life insurance product offering, dependence on the property/casualty agent force to sell life insurance and dividend service requirements from Direct General,” Best continued. “Offsetting these factors is the adequate level of capitalization and positive trends in premium growth and operating earnings within DGLIC. Lastly Best noted that it has wiithdrawn the FSR of ‘B’ (Fair) and ICR of “bb+” of Direct Life Insurance Company (Direct Life) (Griffin, GA) and assigned an NR-3 (Rating Procedure Inapplicable) to the FSR and an “nr” to the ICR. These withdrawals are based on Direct Life having no active business issued, and its remaining policies in force will run off by year-end 2009.”

Standard & Poor’s Ratings Services said today that it withdrew its ‘A+’ financial strength rating on Progressive Motor Insurance Co. (PMIC). “We withdrew the rating because of the company’s merger, into Progressive Direct Insurance Co. (PDIC), another core member of the Progressive group,” explained credit analyst Neil Stein. The merger was effective Dec. 8, 2009. PDIC has ‘AA+’ counterparty credit and financial strength ratings and a negative outlook. This withdrawal has no effect on the ratings on any of the other group members.

A.M. Best Co. has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and the issuer credit ratings to “bbb-” from “bbb” of Utah-based Prime Insurance Group and its members, Prime Insurance Company and Prime Insurance Syndicate, Inc. (both domiciled in Chicago, IL). The ratings have been removed from under review with negative implications and assigned a negative outlook. These rating actions are in response to the “continued excessive financial leverage at the parent company, Prime Holdings Insurance Services, Inc., and the ongoing uncertainty related to the parent’s ability to raise capital,” Best explained. “The negative outlook considers the inherent risk in any major transaction as respects to a possible change in controlling ownership.” In addition Best noted that- the “parent’s high financial leverage stems from its offer to existing shareholders to redeem $18 million of common equity combined with the additional debt taken on by the parent to finance this program. Dividends from members of Prime are the parent’s primary source of funding. As of third quarter 2009, the parent’s adjusted debt-to-total capital was 67.3 percent—a level in excess of A.M. Best’s notching guidelines—given the parent’s limited equity. On a positive note, Prime’s statutory capitalization is strong, and operating performance continues to be very good.”

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 Denver-based Pathfinder Insurance Company, and has revised its outlook on the ratings to negative from stable. “These ratings reflect Pathfinder’s strong capitalization, as reflected in its very high Best’s Capital Adequacy Ratio (BCAR), conservative leverage and operating strategies and its historically high profitability,” said Best. However, the company’s “limited scope of business and its dependence on its ultimate parent, Avis Budget Group, Inc.” for business generation, should be considered as partially offsetting factors. “Pathfinder continues to have minimal losses due to the structure of coverage provided by Avis Budget and its strict risk management program,” best continued. “The ratings consider Pathfinder’s strategic value in providing automobile liability insurance for a portion of Avis Budget’s corporately owned rental fleets. The downgrades also recognize the overall financial and credit ratings of Avis Budget.

A.M. Best Co. has assigned a financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” to Montana-based National Contractors Insurance Company, Inc., RRG (NCIC) with stable outlooks. The ratings reflect “NCIC’s adequate capitalization and experienced management team as well as its solid business plan, which is also weighed into the profitability metrics of the rating,” said Best. “Partially offsetting these factors are the company’s dependence on reinsurance in order to offer its program, volatile operating results in the first three years of business, high expense ratio and concentration of geographic risk. An additional offsetting factor is the execution risk associated with the implementation of NCIC’s business plan.” Best added that NCIC has met its “stringent requirements for new company formations. NCIC’s ratings reflect its ability to meet higher capitalization requirements, which mandate a more conservative level of risk-based capital to support its ratings.” Best said it would continue “to monitor NCIC’s progress in meeting the assumptions of its business plan and also the company’s performance on a quarterly basis. 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 affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of Florida-based Seven Seas Insurance Company, Inc. with stable outlooks. The ratings reflect “Seven Seas’ outstanding profitability, supportive capitalization and management’s specialty underwriting expertise within the ocean and inland marine cargo market,” Best explained. “Much of the success can be attributed to Seven Seas’ strong client relationships, effective loss control and risk management techniques. The ratings also acknowledge the advantages derived from the company’s affiliation with Nicor, Inc. and the synergies gained from Seven Seas’ effective low-cost distribution platform and preferential access to its insureds via the customer network of its affiliate, Tropical Shipping.”