Ratings: WR Berkley (notes), Agri General, Horace Mann, Hingham/Danbury, Standard Casualty

September 21, 2010

Standard & Poor’s Ratings Services has assigned its ‘BBB+’ senior unsecured debt rating to W.R. Berkley Corp.’s (WRB) proposed issue of $300 million of 5.375 percent senior unsecured notes, which are due in 2020. “WRB will use the net proceeds of the issue for general corporate purposes,” S&P noted. “This debt issue will result in a temporary increase in financial leverage and a decrease in fixed-charge coverage. However, excluding the debt of a $150 million aggregate principal amount of 5.125 percent notes due in September 2010, WRB’s credit measures are consistent with rating expectations. The ‘BBB+’ counterparty credit rating on WRB and the ‘A+’ counterparty credit and financial strength ratings on WRB’s operating companies (collectively referred to as Berkley) are unchanged. The outlook on all of these companies remains stable.” S&P added that the ratings reflect “Berkley’s strong operating performance; strong, well-diversified competitive position; and strong liquidity. Offsetting these strengths are WRB’s somewhat aggressive historical financial leverage and operating-company capital levels that, though currently supportive of the rating, have at times fallen below what we expect for the rating level as the companies pursued growth opportunities. The outlook is stable because the consistently strong earnings from the solidly positioned, diversified subsidiaries offset WRB’s modestly aggressive financial profile. Berkley’s capital adequacy ratio, based on S&P’s model, should remain strong, with holding-company debt leverage remaining less than 35 percent. We expect that difficult market conditions will pressure WRB’s top- and bottom-line operating performance. However, the company will likely sustain its strong operating performance, with a combined ratio of less than 96 percent and fixed-charge coverage (excluding realized investment gain/losses) exceeding 5.5x. We also expect that Berkley’s return on revenue will be about 12 percent-14 percent in the next 12 to 18 months. However, the ratings could come under negative pressure if WRB’s enterprise risk management practices were to deteriorate, if there is an adverse change to its strong earnings profile, if debt leverage increases to more than 35 percent, or if fixed-charge coverage were to fall to less than 5.5x.”

A.M. Best Co. has placed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Iowa-based Agri General Insurance Company, the number two writer of multiple peril crop insurance in the U.S., under review with positive implications. These rating actions follow the recent announcement that Rain and Hail Insurance Service, Inc., AGIC’s parent, has entered into a definitive agreement to be acquired by Ace Limited [See IJ web site – https://www.insurancejournal.com/topics/moves/2010/09/14/113199.htm ]. Best noted that ACE Limited has “agreed to purchase the 80 percent of Rain and Hail that it does not already own for $1.1 billion cash. Rain and Hail will continue to operate as a separate and distinct franchise within the company’s ACE Westchester division and Insurance-North America operations. The Rain and Hail management team will remain in place. The positive implications are based on the increased financial wherewithal and resources that will be available to AGIC as a result of the transaction and its affiliation with ACE Limited, which has approximately $21.4 billion in stockholders’ equity through the second quarter of 2010” Best said the ratings will remain under review pending the completion of the transaction, regulatory approvals and its discussions with AGIC’s management. This transaction is expected to close by the end of 2010.

Standard & Poor’s Ratings Services has said that the ratings and outlook on Horace Mann Educators Corp. (BBB/Stable) and its insurance operating subsidiaries are unaffected following the recent announcement regarding President and CEO Louis G. Lower, who was charged with misdemeanor driving under the influence (DUI) and was sentenced to serve time in the county jail. The Horace Mann board of directors subsequently “placed Mr. Lower on leave of absence,” S&P explained. “However,” the bulletin continued, “he is expected to return to his CEO responsibilities in late October or early November.” CFO Peter Heckman is assuming interim CEO responsibilities during Mr. Lower’s absence. S&P said it expects Heckman and the senior management team “will be able to provide appropriate leadership in Mr. Lower’s absence. We do not expect any changes to the company’s direction or the strategic initiatives that Horace Mann was implementing under Mr. Lower’s leadership. And although we do not believe that the recent announcement regarding the CEO will, in itself, lead to any rating actions, we will continue to monitor the events and any potential adverse developments.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B’ (Fair) and issuer credit ratings (ICR) to “a-” from “bb” of Hingham Mutual Fire Insurance Company and its subsidiary, Danbury Insurance Company, both of which are domiciled in Hingham, Mass. Best also removed the ratings from under review with positive implications and assigned a stable outlook. “The rating actions follow the recent policyholder and regulatory approval of the participation of Hingham and Danbury in the intercompany pooling agreement of NLC Insurance Companies (NLC),” Best explained. The rating agency also affirmed the FSR of ‘A-‘ (Excellent) and ICRs of “a-” for the new expanded pool, NLC Insurance Pool (formerly NLC Insurance Companies), which consists of New London County Mutual Insurance Company, its subsidiary, Thames Insurance Company, Inc. (both domiciled in Norwich, CT). The outlook for these ratings is stable. Best said the affirmations “reflect that the addition of Hingham and Danbury into the intercompany pooling agreement, which will likely enhance the presence and distribution capability of NLC throughout its New England operating territory. Additionally, NLC’s strong capitalization will provide sufficient time to fully integrate the new operations without materially impacting the pool’s overall results or financial strength.” Best also removed from under review with positive implications the FSR of B (Fair) and ICR of “bb” and assigned an NR-5 (Not Formally Followed) to the FSR and an “nr” to the ICR of The Hingham Group.”

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit rating to “bbb” from “a-” of Texas-based Standard Casualty Company. The outlook for both ratings is negative. Best explained that “Standard Casualty is a subsidiary of Palm Harbor Homes, Inc. a manufacturer and marketer of factory built homes. The downgrading of Standard Casualty’s ratings is based on the continued deterioration in the capital position and financial performance of Palm Harbor,” which, Best said, “is not consistent with a parent of an “A-” rated insurance company. The ratings and outlook also reflect the uncertainty in Palm Harbor’s credit facility, debt obligations and liquidity requirements, which may result in a potential burden on the insurance operations.” However, Best also indicated that the “negative rating factors are somewhat offset by Standard Casualty’s solid risk-adjusted capitalization despite dividend payments, which have occurred to supplement Palm Harbor’s operations and financial issues. In addition, the ratings contemplate Standard Casualty’s local market knowledge and profitable operating performance, which has consistently outperformed the industry composite averages.”

Was this article valuable?

Here are more articles you may enjoy.