Ratings: Evergreen RRG, Farmers Mutual Branch County, Mid-Continent, Ophthalmic Mutual

May 19, 2010

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of’ B+’ (Good) and issuer credit rating (ICR) of “bbb-” of Vermont-based Evergreen USA, Risk Retention Group, Inc. Best also affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Barbados-based Evergreen Indemnity, Ltd. The outlook for all of these ratings is stable. Best said the ratings reflect Evergreen USA and Evergreen Indemnity’s “continued favorable operating performance over the past few years, their favorable risk-adjusted capitalizations and operating results, which they have experienced since structural changes were implemented in 2004. Starting in 2005, capital increased significantly for both companies due to their retention of relatively strong net incomes. The companies have demonstrated a commitment to building a capital base from operations as demonstrated by the significant increase in their Best’s Capital Adequacy Ratio (BCAR) score.” Best also noted that during 2005, Evergreen USA and Evergreen Indemnity “significantly decreased their net retention per occurrence by making changes to their reinsurance programs. The companies also benefit from shared management and partial common ownership.” Best added that it “recognizes Evergreen USA and Evergreen Indemnity’s continued strides in their extensive loss control programs and the positive effect on the financial results of the companies.”

A.M. Best Co. has downgraded the financial strength rating to ‘C++’ (Marginal) from ‘B’ (Fair) and issuer credit rating to “b” from “bb” of Farmers Mutual Fire Insurance Company of Branch County, based in Coldwater, MI, both with negative outlooks. The rating actions reflect Farmers Branch’s “long-term trend of unfavorable operating results and the significant deterioration in its capital over the past several years,” best explained. “The company’s three consecutive years of surplus decline was driven by declining premium writings coupled with several years of significant fire and liability related losses, which resulted in underwriting losses. In addition, Farmers Branch’s expense position has remained elevated over the past five years and continues to strain overall profitability.” Best also noted that the company’s “single state risk concentration makes it susceptible to regulatory and competitive pressures and severe weather-related losses. The rating outlook is based on the potential for continued deterioration of capital and disruption of the company’s operating strategies. Although management has undertaken actions to improve overall results, there is uncertainty regarding the ultimate success of those initiatives.”

A.M. Best Co. has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and issuer credit rating to “bbb-” from “bbb” of Pennsylvania-based Mid-Continent Insurance Company, and has assigned negative outlooks to both ratings. The rating downgrades reflect Mid-Continent’s “heavy underwriting and operating losses since 2007, which has led to declining surplus levels and elevated leverage measures,” Best explained. Mid-Continent has incurred “heightened underwriting losses since 2007, due to adverse loss reserve development and increased loss severity, as well as a higher frequency on its liability book of business,” the bulletin continued. However, Best did indicate that despite this, Mid-Continent has “maintained adequate risk-adjusted capitalization and liquidity ratios and has an established regional market presence. Furthermore, management has implemented a number of initiatives to reverse the current negative operating trends, although such initiatives have yet to reverse Mid-Continent’s operating losses.” Best explained that the negative rating outlook “recognizes the execution risk of implementing Mid-Continent management’s corrective action plan and the potential for additional surplus loss if these actions fail to reverse the company’s negative operating trends.”

A.M. Best Co. has upgraded the issuer credit rating to “a+” from “a” and affirmed the financial strength rating of ‘A’ (Excellent) of Ophthalmic Mutual Insurance Company (A Risk Retention Group) (OMIC), based in Burlington, VT. The outlook for both ratings is stable. The ratings reflect OMIC’s “excellent risk-adjusted capitalization, long-term operating profitability and leadership position as a provider of medical professional liability insurance to ophthalmologists throughout the United States,” Best indicated. The ratings also “take into account the company’s commitment to pricing and reserve adequacy, its strong policyholder retention rate and historically conservative balance sheet.” As offsetting factors, Best cited OMIC’s” exposure operating as a mono-line carrier restricted by the risk retention group regulations limiting it to medical professional liability coverage. In addition, the ratings consider the risks associated with medical professional liability as they relate to price competition, tort reform and loss cost trends.”

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