Ratings Recap: Builders Group, FMH Group, MAG Mutual, Nationwide (Fla.)

June 7, 2010

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Builders Insurance Group and its three pooled members: Builders Insurance (A Mutual Captive Company) and its wholly owned subsidiaries, Association Insurance Company and Vinings Insurance Company, which is based on So. Carolina. The other companies are domiciled in Atlanta. These rating actions reflect “Builders’ solid risk-adjusted capitalization, historically profitable operating performance, favorable loss reserve development trends and established market presence providing workers’ compensation and general liability coverage, primarily to the home building industry in Georgia and other southeastern states,” said Best. “Additionally, the ratings reflect the group’s prudent risk selection process, effective loss control practices and effective claims management, which contributed to historically strong business retention.” However, Best cited the group’s “recent downturn in operating profitability driven by underwriting losses and reduced investment income as a result of the recent downturn in the construction industry and sizable realized capital losses associated with other than temporary impairment losses,” as offsetting factors. Best also noted that “Builders maintains high underwriting expenses, above average common stock leverage and a modestly concentrated business profile. To help offset this concentration, Builders continues to expand its product line and geographic footprint utilizing agency relationships.” Best explained that, despite the “solid” capitalization, it has revised the rating outlook due to its concern “with the level of underwriting losses and management’s planned above average growth initiatives, which could further impede any turnaround in performance given ongoing soft market conditions.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Des Moines-based FMH Insurance Group and its members. FMH is comprised of Farmers Union Co-Op Insurance Company, Inc., and Farmers Mutual Hail Insurance Company of Iowa. The outlook for all of the ratings is stable. Best said the ratings reflect “FMH’s superior capitalization, solid underwriting and operating results, along with the benefits derived from its leading presence within the crop hail insurance industry. In addition, FMH is a major writer of multi-peril crop insurance. The ratings also recognize the added balance sheet protection provided by an aggregate stop loss reinsurance treaty, which minimizes the potential impact from severe underwriting losses, as well as management’s expertise in the highly specialized multiple peril crop insurance and crop hail marketplaces.” As offsetting factors Best cited “FMH’s reliance on reinsurance, narrow product mix and the potential for underwriting volatility with continued weather-related events.” Best said the stable outlook reflects its expectation that “capitalization will remain supportive of FMH’s ratings and that strong underwriting and operating results will be sustained over the near term.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of MAG Mutual Group of Atlanta, GA and its members: MAG Mutual Insurance Company and Professional Security Insurance Company. The ratings of MAG Mutual reflect its “excellent capitalization, strong operating profitability over the recent period and its leadership position in providing medical professional liability coverage to healthcare providers in Georgia,” Best explained. Best also noted that MAG Mutual has a well “seasoned geographic spread of business in contiguous states in the Southeast, where it derives over half of its premium volume. The ratings also consider MAG Mutual’s favorable underwriting results generated by sizeable loss reserve redundancies taken during the past three years, reflective of the group’s favorable reserving position.” Best cited MAG Mutual’s “concentration risk by product and the potential challenges related to changes to tort reform in Georgia, as well as heightened competition and the inherent volatility in the medical professional liability line,” as offsetting factors. The outlook reflects the group’s “improved level of capitalization, the anticipated maintenance of positive underwriting results despite the recent loss of a cap on non-economic damages in Georgia, while adhering to its cycle management practices,” Best continued. “Over the last five years, MAG Mutual’s operating profitability has benefited from positive trends within the medical professional liability sector and through management’s initiatives of improving rate adequacy and reducing policy limits, in addition to the recent implementation of various corporate management tools and enterprise risk management initiatives.” However, Best also indicated that these positive factors have been somewhat offset by MAG Mutual’s increase in premium volume and related liabilities in years prior to the most recent five-year period. MAG Mutual has consistently maintained a high policyholder retention rate given its whole account management approach and demonstrated ability to respond to client needs.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘B-‘ (Fair) and issuer credit rating of “bb-” of Nationwide Insurance Company of Florida (NICOF). NICOF is a wholly owned subsidiary of Nationwide Mutual Insurance Company. Both NICOF and Nationwide Mutual are domiciled in Columbus, OH, and are members of the Nationwide Group. Best explained that the revised outlook for NICOF “reflects the potential for future favorable rating actions based on further improvement in its risk-adjusted capitalization. NICOF’s ratings recognize its improved level of risk-adjusted capitalization when stress tested tempered by the fluctuating operating performance over the past several years, primarily driven by the significant hurricane losses of 2004 and 2005. While the ratings reflect an improved level of capitalization due to ongoing, coastal reduction initiatives, the ratings also consider the risk inherent in NICOF’s remaining, smaller property book of business in Florida.”

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