Ratings: United Educators, North Country, Stonebridge, Farmers Union, Park, So. United Fire

May 26, 2010

A.M. Best Co. has upgraded the issuer credit rating (ICR) to “a+” from “a” and affirmed the financial strength rating of ‘A’ (Excellent) of United Educators Insurance, a Vermont-based Reciprocal Risk Retention Group (UE), with stable outlooks. The ratings reflect UE’s “excellent capitalization level, strong underwriting results, high member retention rates, excellent liquidity and significant presence in the liability insurance market for educational institutions,” Best explained. However, best said “UE’s profile as an insurer oriented almost exclusively toward one class of insureds,” is an offsetting factor. “Nonetheless, the ratings reflect the ability of management to evaluate classes of business that have developed concerns and to take aggressive risk management, loss control and pricing measures to consistently produce favorable results and grow surplus. The positive factors are derived from UE’s specialized expertise in providing a variety of liability coverages and risk management services to its member educational institutions. The ratings also acknowledge the company’s significant size and profitable underwriting results as well as its considerable distribution by region and type of institution. UE continues to maintain its rates even though current market rates for liability insurance have come under increasing pressure.”

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 New York-based North Country Insurance Company, both with stable outlooks. The ratings and outlook reflect North Country’s “improved underwriting leverage, favorable operating performance and long-standing local market presence,” said Best. North Country’s “improved capital position has been derived from surplus advances in each of the past five years, which are attributable to management’s emphasis on improved operating margins and strengthened balance sheet. Over the most recent five-year period, pre-tax earnings have been driven primarily by profitable underwriting results due to management’s re-underwriting efforts in prior years and strict adherence to underwriting and pricing discipline in recent years. In addition, North Country’s conservative investment portfolio has generated consistent net investment income.” As offsetting factors best cited “the company’s business concentration and property predominant exposure in New York State. As a result, North Country’s operating performance remains susceptible to weather-related events as well as changes in regulatory and competitive market conditions. Also, the company maintains an expense disadvantage, driven primarily by its elevated commission and loss adjustment expenses. Despite this, North Country’s underlying book of business has outperformed industry averages, as reflected by its extremely favorable five-year average pure loss ratio.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Ohio-based Stonebridge Casualty Insurance Company, the P/C subsidiary of Netherlands insurer AEGON N.V. with stable outlooks. The ratings reflect Stonebridge’s “strong capitalization and the financial and operational support provided by AEGON,” Best explained. However, Stonebridge’s “varied premium growth, inconsistent underwriting performance and expense ratio disadvantage” should be taken into, account as partially offsetting factors. “Stonebridge paid $40 million to its immediate parent company in third quarter 2009 via a dividend and a return of capital. Notwithstanding, the rating outlook reflects the generally favorable performance of Stonebridge’s core book of travel insurance business and the commitment of AEGON to maintain a level of capitalization that is supportive of the company’s current ratings.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit of “a-” of Farmers Union Mutual Insurance Company, which is based in Great Falls, Montana. The positive outlook reflects Farmers Union’s “solid operating earnings and strong risk-adjusted capitalization,” said Best. “The ratings also recognize Farmers Union’s prudent risk management strategies, long-term operating profitability and local market expertise. These positive rating factors are reflective of management’s underwriting expertise, conservative investment strategy and catastrophe management initiatives. Best noted that Farmers Union’s “property concentration in Montana” is an offsetting factor. “Although Montana is a large and geographically diverse state, a single-state geographic concentration exposes earnings to catastrophic losses as well as market and regulatory concerns. However, considerable catastrophe reinsurance is maintained to insulate surplus and earnings.”

A.M. Best Co. has upgraded the financial strength rating to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit rating to “a” from “a-” of Vermont-based Park Assurance Company, both with stable outlooks. Best said the ratings reflect Park’s “strong balance sheet, excellent liquidity and conservative operating strategy. The ratings also recognize the company’s favorable operating results and its role as a single parent captive of JPMorgan Chase & Co., a leading global financial services group. As partial offsetting factors, Best cited “Park’s large gross underwriting exposures as it offers very high insurance limits and insures some properties with substantial insured values. Park is very dependent on reinsurance in order to offer its various property programs and high limits.” Best also explained that Park “provides JPMorgan Chase with global property coverages, including coverages against terrorism losses. As such, it is a key component of JPMorgan Chase’s risk management strategy and benefits from the group’s significant financial resources. Park also benefits from the group’s extensive risk mitigation and safety programs. As the company cedes most of its global property program, its exposure to underwriting losses is minimal, barring significant losses from terrorism.” In addition Best noted that the Company “uses only well rated reinsurers, and its surplus base is more than adequate to support its asset and credit risk exposures. However, as the company offers very high limits, its resulting gross underwriting exposures on its largest properties also are very high. Park’s dependence on reinsurance is therefore substantial, creating considerable credit risk in the event of exceptionally large losses. In addition, the company is dependent on the protection afforded by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). While the TRIPRA program offers significant protection from terrorism losses, the net impact on Park could still be burdensome considering the high coverage limits offered.” Best added, however, that it does recognize “the low probability of such extreme events and the support available to the company as part of JPMorgan Chase.”

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘B-‘ (Fair) and issuer credit rating (ICR) of “bb-” of Southern United Fire Insurance Company of Mobile, Ala. and assigned a category NR-5 (Not Formally Followed) to the FSR and “nr” to the ICR. Best explained that the rating actions follow its confirmation that “Southern United has been merged into American Service Insurance Company, Inc. and no longer exists.” Best noted that American Service “is a wholly owned subsidiary of Kingsway America Inc. The ultimate parent of both companies is Kingsway Financial Services Inc., a Canadian holding company whose common shares are listed on the New York and Toronto Stock Exchanges.” In addition Best said “the FSR of ‘B-‘ (Fair) and ICR of “bb-” for American Service are unchanged by this merger and remain under review with negative implications.”

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