Ratings: Partners Mutual, Farmers (NJ), Premier Group, United Farm Indiana, Real State, Kansas Med Mutual

May 13, 2010

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Wisconsin-based Partners Mutual Insurance Company. Best said the negative outlook reflects “Partners’ trend of operating losses that have caused a decline in its risk-adjusted capitalization at a time of highly competitive market conditions. The ratings also reflect Partners’ adequate capitalization and long-standing agency relationships. Offsetting these positive factors are the company’s recent trend of deteriorating underwriting performance, elevated expense structure and geographic concentration of risks that exposes it to severe weather-related events.”

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Farmers Insurance Company of Flemington. The revised outlook for Farmers reflects the “reduced exposure that its risk-adjusted capitalization has to equity market volatility going forward,” Best explained. “Over the past several years, the company reduced its significant holdings of common stock to comply with the New Jersey legislation passed in 2008 limiting equity investments, which was followed by revision of Farmers’ investment strategy and portfolio allocation that emphasizes fixed income investments.” Best also noted that “Farmers’ ratings recognize its adequate capitalization, generally favorable operating performance and local market expertise, which are offset by the company’s unfavorable loss reserve development trends and geographic concentration of risks in New Jersey. As a property-predominant writer in New Jersey, Farmers’ surplus remains exposed to adverse legislative actions, regulatory decisions and severe weather conditions.”

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of the Tennessee-based Premier Group Insurance Company, both with stable outlook. Best said the “ratings reflect Premier’s “excellent capitalization and liquidity, low leverage and conservative investment portfolio. The ratings also recognize Premier’s solid operating performance driven by strong underwriting results, which compare favorably to the workers’ compensation industry composite averages. Additionally, the ratings consider the financial benefits and enhanced business profile derived from Premier’s ultimate parent company, National HealthCare Corporation. Premier has been able to leverage its monoline focus and its role within NHC to achieve consistently profitable underwriting results.” However, Best also indicated that the Company’s “relatively high retention per claim and its limited scale and business diversification,” should be considered as offsetting factors. “While Premier has a stable source of business from NHC and is able to write business from third parties, its business volume, growth opportunities and dividend policy are largely dependent on NHC’s strategies,” Best concluded.

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of the United Farm Bureau of Indiana Group and two members, United Farm Family Mutual Insurance Company (Mutual) and UFB Casualty Insurance Company. However, Best has downgraded the FSR to ‘B++’ (Good) from ‘A-‘ (Excellent) and ICR to “bbb+” from “a-” of Countryway Insurance Company. The outlook for all ratings is stable. All the companies are domiciled in Indianapolis, except Countryway, which is in New York. The ratings for the Group are “based upon the consolidation of Mutual and its wholly owned subsidiaries, UFB Casualty and Countryway. UFB Casualty is 100 percent reinsured by Mutual,” Best explained. “The Group’s ratings are primarily reflective of its strong capitalization and leading market position in Indiana where it is one of the largest property/casualty insurers and the largest provider of farm owners’ insurance. These positive rating aspects are offset in part by the Group’s below average earnings in recent years, which have been caused by more frequent and severe weather-related events and investment losses.” Best said the downgrading of the ratings for Countryway is primarily a result of its “continued poor operating performance and the challenges the company faces to improve profitability in very competitive markets. These concerns are partially offset by recent actions to re-underwrite certain lines of business, reduce risk, control expenses and the implicit and explicit support of Mutual, which provides many essential services and has historically provided additional capital to Countryway when needed.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of Honolulu-based Real State Insurance LLC, both with stable outlooks. The ratings reflect Real State’s “good capitalization level and favorable operating experience as well as its role as the captive insurance company for EOP Operating Limited Partnership (EOPOLP),” said Best. “Real State also insures Blackstone affiliates, CarrAmerica Realty Operating Partnership, L.P., TRZ Holdings LLC and Blackstone real estate advisor’s office portfolio. Also, the property insurance retention was lowered to $50 million from $75 million.” As partially offsetting factors, Best cited “Real State’s compromised risk-adjusted capital strength in the event of a full limit earthquake as measured by Best’s Capital Adequacy Ratio (BCAR), and that the company’s only source of business is the office property portfolio of EOPOLP. Furthermore, earthquake and wind exposures present the potential for a single catastrophic loss for Real State, which could effectively exhaust more than 46 percent of its surplus. While the BCAR was higher prior to the leveraged buy-out of Equity Office Partnership Trust (EOPT) by Blackstone, risk-adjusted capital strength decreased due to a change in A.M. Best’s treatment of the parental indemnity agreement.”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Kansas Medical Mutual Insurance Company, and has assigned a stable outlook to both. The ratings reflect KaMMCO’s “strong risk-adjusted capital position, long-term and consistent record of favorable operating performance and its dominant market position as the leading writer of medical professional liability insurance (MPLI) in Kansas.,” Best stated. “These positive rating factors are primarily derived from the company’s long-term pricing and underwriting discipline, strong retained earnings and sound capital management. As a leading MPLI provider in Kansas, KaMMCO’s profitability also is a by-product of the state’s relatively conservative judicial and legislative climate, its favorable tort reform environment (including caps on non-economic damages) and the existence of the Health Care Stabilization Fund (HCSF). Distribution diversification and customer service also have played a role in allowing KaMMCO to grow its book in a profitable manner over an extended period of time. These positive rating factors are offset by the inherent market risks associated with being essentially a single state, monoline medical professional liability insurer, as it relates to price competition, regulatory and legislative challenges, including the pending Kansas Supreme Court hearing on the constitutionality of caps on non-economic damages. KaMMCO is endorsed as the exclusive preferred provider by both the Kansas Medical Society and the Kansas Hospital Association for providing professional liability insurance to their members.”

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