Ratings Recap: XL Lloyds, Integon, Minnesota Lawyers, HCC Insurance

March 4, 2010

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of Dallas-based XL Lloyds Insurance Company, and has assigned an NR-5 to the FSR (Not Formally Followed) and an “nr” to the ICR. These rating actions “follow the recent decision by the ultimate parent, XL Capital Ltd. to dissolve XL Lloyds and transfer all assets and liabilities to its affiliated company, XL Specialty Insurance Company,” Best explained. XL Lloyds was established in 2004 to write commercial property catastrophe business in Texas. While in operation, XL Lloyds did not retain any business as all premiums and losses were ceded to XL Specialty under a whole account quota share agreement.

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit ratings (ICR) to “a-” from “bbb” of Integon General Insurance Corporation (IGIC) of Winston, NC and its nine pooled affiliated companies (listed below). All of the ratings have been removed from under review with positive implications and assigned a stable outlook. Best explained that the rating actions follow “IGIC’s acquisition by American Capital Acquisition Corporation from GMAC Insurance Group (GMACI). The ratings also reflect the consolidated group’s strong capitalization, the historically profitable operating performance of GMACI’s personal lines book of business and its well established market presence. Additionally, the ratings acknowledge the operational benefits that the group derives as a quota share partner with AmTrust Financial Services, Inc., Maiden Reinsurance Company and a Bermudian affiliated company.” However, the “execution risk faced by management in achieving its business plans and the risks inherent in profitably growing business amidst challenging market conditions,” should be considered as offsetting factors. “Despite these concerns, the outlook recognizes IGIC’s historically strong operating performance and experienced management team,” Best continued. “Both the ratings and outlook remain largely dependent on management’s ability to meet projected underwriting targets, while maintaining sufficient capital in each entity to support its business plans.” The FSR has been upgraded to ‘A-‘ (Excellent) from ‘B++’ (Good) and the ICRs have been upgraded to “a-” from “bbb” for Integon General Insurance Corporation and its pooled affiliated companies, as follows: National General Insurance Company — National General Assurance Company — GMAC Insurance Company Online, Inc. — MIC General Insurance Corporation — Integon National Insurance Company — Integon Preferred Insurance Company — Integon Indemnity Corporation — Integon Casualty Insurance Company — New South Insurance Company.

A.M. Best Co. has downgraded the financial strength rating to ‘A-‘ (Excellent) from ‘A’ (Excellent) and issuer credit rating to “a-” from “a” of Minnesota Lawyers Mutual Insurance Company, and has revised the outlook for both ratings to stable from negative. Best explained that the rating downgrades “follow the negative outlook that was placed on Minnesota Lawyers’ ratings last year as a result of the company’s deteriorating operating performance and significant drop in its policyholder surplus levels.” Best indicated that it had “expected operating results would materially improve over the near term.” However, “while surplus levels recovered appreciably in 2009, underwriting and operating performance continued to fall short of Best’s expectations. As a result, the company’s overall operating performance over the last few years is no longer consistent with the previous rating level.” The deterioration in underwriting performance, which began in the latter part of 2007, was “initially attributable to higher frequency levels brought on by deteriorating economic conditions,” Best continued. “It has since been further aggravated by higher claim severities and the emergence of adverse prior year loss reserve development. Furthermore, Minnesota Lawyers’ results have been adversely impacted by inadequate pricing on some of its business written during a past period of significant exposure growth.” On a more positive note Best indicated that Minnesota Lawyers’ current ratings “reflect its strong risk-adjusted capital position, high policyholder retention levels and management’s extensive knowledge of the legal profession. The stable outlook recognizes this strong capital position and the expected benefit that recently implemented underwriting initiatives should have on the company’s operating performance over the near term. These initiatives include base rate increases and real estate surcharges. Minnesota Lawyers also has exited numerous geographical locales where operating performance did not meet its standards.”

A.M. Best Co. has placed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” of HCC Insurance Company (HCCIC), which is based in Indianapolis, under review with negative implications, following HCCIC’s immediate parent, Houston Casualty Company (HC), entering into a definitive agreement for the sale of HCCIC to an outside party. Best pointed out that “HCCIC is a small, inactive company. In concurrence with the sale, and with respect to any new business only, HCCIC will terminate its existing 100 percent quota share reinsurance contract with HC from whom it derives its ratings. HCCIC’s underwriting activities, prior to cessation, were focused on commercial property packages. HCCIC began to exit this business in June 2008.” Best also noted that the ICR of “a-” and debt ratings of HCCIC’s ultimate parent, HCC Insurance Holdings, Inc. and the FSRs and ICRs of its subsidiaries are unchanged. Best said the ratings of HCCIC will remain under review pending further evaluation of the transaction and all customary regulatory approvals.”

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