Ratings Recap: Western General, Lumbermen’s, AttPro RRG, Aspen Specialty, ILM Group

October 8, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating (ICR) of “bbb+” of Western General Insurance Company. Best indicated that, although the outlook for the FSR is stable, the outlook for the ICR has been revised to negative from stable. The ratings for Western General reflect its “solid risk-adjusted capitalization, generally favorable operating performance and expertise as a niche writer of dealer-originated non-standard private passenger automobile business,” Best explained. As offsetting factors best cited “Western General’s limited business profile, underwriting volatility and geographic concentration.” Best added that it had revised the ICR outlook “based on the continued deterioration in underwriting performance, lack of scalability of Western General’s expense structure and change in business profile in recent years due to a significant loss of business.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Florida-based Lumbermen’s Underwriting Alliance (LUA). Best explained that the negative outlook “reflects LUA’s poor operating performance in recent years, which has resulted in a lower level of risk-adjusted capitalization, as well as the ongoing challenges the company faces to improve results in the near term, given the challenging market conditions in LUA’s niche, which are attributable to competition and the ongoing economic downturn.” In addition best noted that “LUA has reported poor underwriting results over the recent five-year period, which have been driven by large property losses in Canada and above average underwriting expenses. Furthermore, policyholder surplus has declined in recent years due to the company’s lackluster underwriting performance and lower investment returns, resulting in weakened capitalization. The affirmation of the ratings reflects LUA’s supportive capitalization, strong niche market experience in providing coverages to the forest products industry in North America and its dedicated service capabilities that have enabled the company to sustain strong market penetration.”

A.M. Best Co. has assigned a financial strength rating of ‘A++’ (Superior) and issuer credit rating of “aa+” to AttPro RRG Reciprocal Risk Retention Group, which is headquartered in the District of Columbia. The outlook assigned to both ratings is stable. The ratings “reflect the existence of a 95 percent quota share reinsurance agreement between AttPro RRG and The Medical Protective Company, a Berkshire Hathaway Inc. affiliated insurer,” Best explained. “In addition to providing substantial reinsurance to AttPro RRG, Medical Protective maintains board control of AttPro RRG’s attorney-in-fact and will provide all administrative services to AttPro RRG through a management and services agreement with the company. AttPro RRG will write lawyer professional liability insurance for solo attorneys and law firms, with an initial focus on the New Jersey and New York markets.” Best indicated that “given the strong reinsurance protection,” it “expects AttPro RRG’s operating results to be modest. Nonetheless, the rating outlook is contingent upon the company meeting its forecasted objectives and maintaining supportive risk-adjusted capitalization.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of No. Dakota-based Aspen Specialty Insurance Company (ASIC), a wholly owned subsidiary of its ultimate parent, Aspen Insurance Holdings Limited. The outlook for both ratings is stable. The ratings reflect “ASIC’s role and strategic importance to Aspen’s overall strategy and the explicit support provided through substantial quota share reinsurance of ASIC’s net business by its Bermuda-based affiliate, Aspen Insurance Limited (AIL), in addition to the guarantee of all third-party reinsurance recoverable,” said Best. “ASIC’s balance sheet is further protected by an adverse development cover for the company’s outstanding loss reserves as of December 31, 2008. The ratings also reflect the implied support of future parental commitment. ASIC maintains strong stand-alone capitalization, driven by its low underwriting leverage and negligible investment leverage, and solid liquidity. However, the current competitive market presents a significant challenge to a company still seeking to firmly establish itself in the surplus lines/specialty market.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of’ B++’ (Good) and issuer credit ratings of “bbb” of ILM Group and its subsidiaries, which include Indiana Lumbermens Mutual Insurance Company, Lone Star National Insurance Company and National Building Material Assurance Company. All companies are domiciled in Indianapolis, Indiana. The negative outlook “reflects ILM’s weak underwriting results in recent years,” said Best, as well as the rating agency’s “expectations for continued operating losses over the near term as ILM faces ongoing market challenges. While ILM’s risk-adjusted capitalization supports its current ratings, challenging market conditions, lackluster underwriting results and deteriorating macroeconomic conditions have adversely impacted the group’s operating performance in recent years. The group’s poor underwriting results over the recent five-year period have been driven by large property losses, an accumulation of weather-related losses, relatively high underwriting expenses and isolated areas of adverse loss reserve development.” Best added that the affirmation of the ratings reflects ILM’s “solid capitalization and strong niche market presence as a provider of insurance coverages to the forest products and building materials industries. This specialty focus provides ILM with certain sustainable competitive advantages, particularly in terms of pricing, claims adjusting and loss control. The ratings also recognize management’s recent initiatives to improve the group’s operating performance along with its conservative investment portfolio, which has produced a steady stream of income.”

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