Ratings Roundup: United Fire, Tall Pines, Safety Group, Plateau

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 of “a” of United Fire & Casualty Group (UFCG) and its five P/C members, which operate under an intercompany pooling agreement led by United Fire & Casualty Company (UFCC). Best also affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of United Life Insurance Company (ULIC), a wholly owned subsidiary of UFCS. The outlook for all of the ratings is stable. All companies listed above are domiciled in Cedar Rapids, Iowa. Best said the revised outlook for UFCG “reflects the decline in the group’s reported underwriting and operating results in recent years, related primarily to the adverse development in 2008 and 2009 of claims related to Hurricane Katrina in Louisiana and an increase in general liability development, including claims for construction defect. The decline has been relative to both UFCG’s own historic norms and to the average of the commercial casualty composite. While continued adverse development of the Katrina-related claims is anticipated, should other underwriting and operating results not meet or exceed historic norms, there is potential for negative rating actions.” In addition Best noted that the ratings reflect “UFCG’s strong risk-adjusted capitalization, which remains fully supportive of the current ratings. The ratings also consider UFCG’s diversified commercial product offerings, the financial flexibility afforded by UFCC and the group’s long-standing agency relationships and strong regional franchise.” However, Best indicated that the “decline in UFCG’s underwriting and operating results (which were previously discussed), its continued exposure to weather- and catastrophe-related losses and the ongoing competitive pressures in its key target markets” should be considered as offsetting factors. “The ratings of ULIC consider its sufficient level of risk-adjusted capitalization, consistently positive operating performance and its positive unrealized gain position in its investment portfolio, a strong position given the current economic climate. While statutory earnings are lower than in prior years, capital and surplus increased over the last year primarily due to positive trends in unrealized investment gains.” Best also noted that “profitability has declined in recent years as a result of lower investment income, the run-off of its credit insurance business, some spread compression in interest-sensitive product lines and fluctuations in ULIC’s effective tax rates due to write-downs. Premium growth trends have been favorable, and ordinary life sales have benefitted during the most recent period from new product offerings. A.M. Best will continue to monitor ULIC’s ability to increase profitability while continuing to produce top line growth.” The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for United Fire & Casualty Group and its following property/casualty subsidiaries: — Addison Insurance Company — Lafayette Insurance Company — United Fire & Casualty Company — United Fire & Indemnity Company — United Fire Lloyds.

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of The Safety Group and its inter-company pool members, Safety Insurance Company, Safety Indemnity Insurance Company and Safety Property and Casualty Insurance Company. Best also affirmed the ICR of “bbb” of Safety’s publicly traded holding company, Delaware-based Safety Insurance Group, Inc. The outlook for all ratings is stable. All companies are domiciled in Boston, Mass., except where specified. Best said its ratings on Safety reflect its “solid capitalization, trend of strong operating income and its market position as a leading personal automobile writer in Massachusetts. The ratings also acknowledge the group’s favorable loss reserve development and low investment leverage.” However, “Safety’s concentration of business in the Massachusetts private passenger automobile market and its increasing property exposures,” should be taken into account as partially offsetting factors. Best added that, “based on 2009 direct premium writings, Safety was the second-largest writer of private passenger automobile premiums in Massachusetts with a 10.9 percent market share. In addition to its personal automobile product offering, Safety provides commercial automobile, homeowners, dwelling fire, umbrella and business owner policies. Safety is licensed in Massachusetts and New Hampshire.”

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Vermont-based Tall Pines Insurance Company, both with stable outlooks. The ratings are based on Tall Pines’ “excellent capitalization levels, quality management team with numerous years of industry experience and a strong risk management program,” said Best. However the Company’s “high expense ratio and narrow business scope as a single parent captive with limited stand-alone financial flexibility,” are offsetting factors. “Tall Pines’ capitalization and operating performance continue to be robust. However, Tall Pines’ ratings are impacted by the credit vulnerability of its parent company, Valhi Inc., which has the capacity to support the captive’s capital position and has access to external capital,” Best continued. “Tall Pines’ risk management program includes regular visits to each plant to assess risks. Loss control auditors generally visit the facilities twice a year and more frequently if needed (i.e., if construction is in progress, there is an increase in loss trends). The auditors find areas that need improvement and help the facilities implement methodologies and loss control practices. The facilities have a specified time frame for implementation and must respond within the established guidelines.” Best added that the “loss control program includes conferences, which consist of presentations, case studies and third party presentations that allow for interaction between the varying business units. The company works closely with the business units to track incident data, and if necessary, report incident data to Occupational Safety and Health Administration. Internal and external benchmarking techniques are used, based primarily on incident rates with the goal of reducing them. Tall Pines hosts bi-annual safety conferences in North America and annual safety conferences in Europe in an effort to promote safety awareness education.”

A.M. Best Co. has upgraded the financial strength rating to ‘B++’ (Good) from ‘B+’ (Good) and issuer credit rating to “bbb+” from “bbb-” of Tennessee-based Plateau Insurance Company, both with stable outlooks. The upgrading of Plateau Insurance’s ratings “reflects its favorable level of risk-adjusted capitalization and consistent earnings, including an improvement in its 2009 reported results,” Best explained. “The company’s year-end 2009 earnings were primarily driven by a change in its reserve methodology and consistent investment income. Moreover, Plateau Insurance’s conservative investment strategy has allowed the company to remain somewhat insulated from the economic and investment crisis with very low impairments and investment losses.” Best added that the rating upgrades also reflect the “integrated nature and earnings contribution from its ‘A-‘ (Excellent)-rated property/casualty (PC) parent, Plateau Casualty Insurance Company, and its ultimate parent, Plateau Group, Inc. Other rating considerations recognize the group’s synergies, common management and opportunities to market Plateau Insurance’s credit life and disability insurance products, along with the companion PC product portfolio to consumer finance companies, community banks and automobile dealers.” In conclusion Best said that, “while Plateau Insurance’s capitalization and earnings remain favorable and represent a good ability to meet its ongoing obligations to policyholders,” Best believes its business profile “will remain challenged. Plateau Insurance is subject to macroeconomic and regulatory pressures, as well as competitive pressures from stronger, more diversified credit insurers, which may continue to limit its growth opportunities.”