Ratings Roundup: AMEX, Castle Key, Torus, Hartford (debt)

August 25, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of AMEX Assurance Company, a wholly owned subsidiary of American Express Company. The outlook for both ratings is stable. The ratings reflect AMEX Assurance’s “strong capital position and continued trend of favorable earnings generated by providing insurance products to American Express Cardmembers,” Best explained. As offsetting factors Best cited “AMEX Assurance’s limited business scope, as the majority of its products are primarily confined to American Express Cardmembers, and over the past five years, all of AMEX Assurance’s prior years’ net income has been returned to American Express through stockholder dividends.” Best added that AMEX Assurance’s strong capital position is “reflective of its conservative investment risk profile and favorable operating results from efficient operations that drove its profit margins. The favorable operating results reflect the company’s low-cost, direct marketing strategy and its emphasis on travel-related and other ancillary insurance coverages offered exclusively to American Express Cardmembers.” The report also noted that “during a transition period following AMEX Assurance’s temporary spin off from American Express in 2005, operating income was derived entirely from investment income and ceding commissions. However, since being reacquired by American Express in September 2007, the company has generated its consistent trend of strong income from underwriting and investments.”

A.M. Best Co. has affirmed the financial strength rating of ‘B’- (Fair) and issuer credit ratings of “bb-” of Florida-based Castle Key Group and its members, but the outlook for all of the ratings is negative. Best said the “ratings and outlook reflect Castle Key’s continued unprofitable operating performance and weak risk-adjusted capitalization, particularly as measured by A.M. Best on a catastrophe stress tested basis.” Castle Key is the dedicated Florida property writer for its parent company, Allstate Insurance Company. As such, Best indicated that it “continues to maintain significant exposure to hurricanes, with a corresponding substantial reliance on catastrophe reinsurance. In addition, the group’s reinsurance program relies heavily upon the Florida Hurricane Catastrophe Fund (FHCF), including the purchase of Temporary Increase in Coverage Limits (TICL).” Best said it continues to be concerned “regarding the ability of the FHCF to fund all obligations in the event of a severe hurricane, based largely on its contingent capital structure.” Accordingly, the structure of Castle Key’s catastrophe reinsurance program negatively impacts Best’s view of its risk-adjusted capitalization. Partially offsetting these negative rating factors is the “enhancement provided by Allstate in terms of historical financial support, although Castle Key is separately capitalized and not reinsured by Allstate, as well as operational and risk management initiatives,” Best continued. The rating g agency also said it “expects that parental support regarding the claims paying ability of Castle Key commensurate with its rating level will be maintained in the event of frequent and/or severe hurricane activity.” Best summarized the company ratings as follows:
The FSR of B- (Fair) and ICRs of “bb-” have been affirmed for Castle Key Group and its following members:
Castle Key Insurance Company
Castle Key Indemnity Company
Encompass Floridian Insurance Company
Encompass Floridian Indemnity Company

A.M. Best Co. has placed the financial strength rating of’ B+’ (Good) and issuer credit rating of “bbb-” of Delaware-based Torus National Insurance Company (formerly TIG Indemnity Company) under review with positive implications. Best said it took the rating actions following the completion of Torus National’s acquisition in July 2010 by Torus Specialty Insurance Company, a subsidiary of Torus Insurance Holdings Limited, from TIG Insurance Company, a holding company that is ultimately owned by Fairfax Financial Holdings Limited. Best pointed out that “Torus National has been in run off since 2002, and its existing insurance liabilities are 100 percent reinsured by its former parent, TIG Insurance Company.” Torus National is expected to recommence trading in the third quarter of 2010. Best added that the ratings of Torus National will remain under review “until it has assessed Torus group’s plans for the company, including the level of financial support Torus will provide.”

A.M. Best Co. has assigned indicative ratings of “bbb+” to senior unsecured debt, “bbb” to subordinated debt and “bbb-” to preferred stock, which may be issued under the recently filed and approved shelf registration statement of The Hartford Financial Services Group, Inc. The outlook assigned to the ratings is negative. “The new shelf registration replaces The Hartford’s previous shelf registration filed in April 2007, which had expired,” Best explained. “Consequently, the ratings for the previous shelf registration have been withdrawn. The Hartford’s issuer credit rating (ICR) of “bbb+”, existing debt ratings and ratings of its insurance operating entities are all unchanged.”

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