Ratings Roundup: RMA Residential, Dorinco, NAICO

July 23, 2010

A.M. Best Co. has placed under review with negative implications the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Risk Management Association of Illinois-based Residential Construction Employers Council (RMA). The rating actions reflect Best’s “inability to complete its rating analysis of RMA due to incomplete information, which will be reviewed upon receipt,” said the bulletin. “The ratings of RMA will remain under review pending its submission of all requested information, A.M. Best’s review of that information and further discussions with RMA’s management.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Michigan-based Dorinco Reinsurance Company, the captive reinsurance company for The Dow Chemical Company. Best said the revised outlook recognizes “Dorinco’s continued positive net income and relatively consistent underwriting income, strong risk-adjusted capitalization, strategic relationship with Dow and Dorinco’s balanced risk profile. Dorinco’s risk profile remains diversified through its short-tail unrelated third party reinsurance business and the longer-tail exposure associated with its Dow business.” Best also noted that “Dorinco initiated a strategy several years ago to reposition its book of business with the goal of improving profitability, creating stable, sustainable results and reducing volatility, while still maintaining its primary objective of being a risk management tool for Dow. Dorinco has demonstrated steady and measurable progress, and management is committed to maintaining this strategy going forward. As offsetting factors, Best cited “the challenges faced by Dorinco’s ultimate parent. In April 2009, Dow completed a sizeable acquisition at a time of turmoil in the financial markets. Over the past year, as financial markets have opened up, Dow has substantially reduced its near-term debt maturities and continues to improve its debt-to-capital ratio. Dow’s credit profile has stabilized, but if it weakens, it could put pressure on Dorinco’s ratings.”

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 National American Insurance Company (NAICO). Best also upgraded the ICR to “bb” from “bb-“and debt rating to “bb” from “bb-” on $24 million 8.75 percent senior unsecured debentures due 2014 (of which $7 million remains) of NAICO’s parent, Chandler (USA) Inc., both domiciled in Chandler, OK. The outlook for all ratings is stable. The ratings reflect NAICO’s “strong risk-adjusted capitalization, improved operating performance and long-standing regional market presence,” said Best. “The improvement is due in part to management’s corrective actions over the years, including significantly increasing rates, reducing exposures, improving risk selection and tightening policy terms and conditions.” As offsetting factors, best cited “the historical adverse loss reserve development reported on certain accident years prior to 2002, as well as NAICO’s considerable dependence on reinsurance, despite increased retention levels in recent years. Nevertheless, the outlook is supported by the company’s significantly improved risk-adjusted capital position, diminished loss reserve development reported in recent years and management’s projections for persistent operating profitability and strong risk-adjusted capitalization over the near term.” Best also indicated that the ratings “consider the financial leverage and interest coverage of the organization on an enterprise basis. Consolidated financial leverage of debt plus preferred stock to total capital remains acceptable given the current rating levels, with interest coverage ratios also within acceptable parameters. NAICO offers various property/casualty insurance products through its two main marketing programs: political subdivisions, which insures school districts in Oklahoma, and standard lines.”

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