Employers Reinsurance Downgraded
Standard & Poor's lowered its counterparty credit and financial strength ratings on Employers Reinsurance Corp. and its wholly owned subsidiaries (collectively, ERC) to "AA+" from "AAA" based on ERC's strong market position, very strong capitalization and liquidity, and improved financial leverage offset by deterioration in current operating results. S&P also downgraded its counterparty credit and senior debt ratings on GE Global Insurance Holding Corp. to "AA-"from "AA." The outlook is stable.
Premium growth of approximately 10 to 15 percent is expected from domestic specialty nonlife operations, international operations, and U.S. life operations over the medium term. ERC's net property/catastrophic risk retention decreased significantly post Sept 11 and is not expected to contribute to higher loss ratios prospectively. ROR's are expected to rise to 9 percent in 2002, largely because of better underwriting results prompted by hardening rates, improved cash flows, and lower operational costs. Dividends, typically 35 percent on net income, are expected once capital adequacy levels are restored.
A.M. Best Affirms FM Global
A.M. Best affirmed insurer FM Global's rating of "A+," but placed a negative outlook on the rating. Factors affecting the rating action included the group's solid capitalization, prominent market position within the commercial property market and the long-term benefits to be gained from FM Global's re-underwriting efforts, as well as its commitment to loss prevention and property conservation. Recent price firming in the commercial property marketplace was also a factor.
The negative outlook stemmed from the inherent volatility associated with the company's underwriting of property risks and the over-weighting of equity securities in the company's investment portfolio. A.M. Best stressed, however, that positives included FM Global's solid capitalization, strong liquidity and long-term earnings prospects, along with the company's position as a provider of enhanced engineering technology and insurance solutions to a growing number of insureds. Also noted was FM Global's success in maintaining high customer retention levels.
Hartford Financial Services Affirmed
Fitch Ratings affirmed the fixed income ratings of the Hartford Financial Services Group Inc. (HFSG), including the "A+" senior debt rating, and the "AA" insurer financial strength ratings of its primary property/casualty operation, the Hartford Fire Intercompany Pool (Hartford Fire). The rating outlook is stable.
The rating rationale is based on HFSG's strong and consistent operating performance during difficult market conditions, good balance sheet and broad business diversification. Fitch believes that the recent resolution of the PPG asbestos litigation was favorable to Hartford Fire as the company did not need to set up additional reserves and a major claim is now closed. The company's exposure to losses tied to events of Sept. 11 remain within the company's original estimate of net exposure of $440 million, and losses have subsequently been replaced with capital raised during the fourth quarter of 2001.
Fitch said Hartford Fire's strengths include its diverse market and product profile, solid underwriting discipline, strong balance sheet position and sound operating performance in difficult market conditions. Asset quality also remains excellent.
Fitch's primary concerns for Hartford Fire include challenges the company has encountered in various business lines, with the main focus related to the performance in the assumed reinsurance operation. The ratings also reflect parent company financial leverage and ongoing risks associated with asbestos and environmental loss exposure.
The company's coverage ratios should benefit from improved market conditions in the commercial property/casualty sector. Given the improved conditions, Hartford Fire is likely to report a combined ratio for 2002 that represents solid improvement from recent years.
Gulf Insurance Group Under Review
A.M. Best Co. placed the financial strength rating of "A++" (Superior) of members of the Gulf Insurance Group, Hartford, Conn., under review with negative implications.
The rating action follows Gulf's May 20 announcement that a private-equity fund, Trident II, L.P., will invest $125 million in convertible preferred stock and notes of Commercial Insurance Resources Inc., the parent of the Gulf companies. As a result of this transaction, five Gulf companies will be removed from the Travelers Property Casualty Pool, and the Gulf Pool will be re-established. The negative implications reflect this removal of Gulf from the Travelers Pool.
Prior to becoming part of the Travelers Pool in October 2001, the Gulf Pool was separately rated "A+" (Superior) by A.M. Best. Trident II,L.P. is a private-equity fund managed by MMC Capital, a subsidiary of Marsh & McLennan Cos.
The assignment of a new rating by A.M. Best will take into consideration Travelers' continued majority ownership in Gulf, as well as its role and strategic importance to Travelers' overall operations. Gulf continues to be recognized as one of the leading specialty writers of insurance, including management and professional liability, environmental liability, entertainment, excess and surplus lines, fidelity, surety and umbrella coverages.
The five Gulf companies that will be removed from the Travelers Pool and are affected by the under review action are Atlantic Insurance Co., Gulf Group Lloyds, Gulf Insurance Co., Gulf Underwriters Insurance Co. and Select Insurance Co. In addition, Gulf Insurance Co. U.K. Ltd., a member of the Gulf Group, is also affected.
The St. Paul FSR Lowered
A.M. Best Co. has downgraded the financial strength rating to "A" (Excellent) from "A+" (Superior) of The St. Paul Companies Inc.'s, St. Paul, Minn., p/c subsidiaries and its senior debt rating to "a-" from "a", subordinated debt to "bbb+" from "a-" and preferred securities to "bbb+" from "a-". The company's commercial paper rating of AMB-1 has been affirmed. The rating outlook is stable.
This action follows St. Paul's announcement that it has entered into an approximate $1 billion settlement agreement with its largest asbestos claimant, Western MacArthur, and takes into consideration A.M. Best's review of the group's earnings, cash flow and balance sheet strength.
St. Paul's net loss with respect to the settlement is estimated to be approximately $380 million. Although this is a significant setback to earnings in 2002, a portion of this settlement is expected to be offset by an estimated $100 million to $150 million of after-tax gains from the previously announced spin-off of its reinsurance operations. Moreover, A.M. Best views this large settlement as an anomaly for St. Paul, which has historically insured small and middle market companies.
With regard to non-asbestos related exposures, A.M. Best believes there are significant ongoing uncertainties relating to the reserves established for St. Paul's run-off business segments, specifically global healthcare, reinsurance and international operations. This action recognizes the size and volatility of these run-off segments relative to "core" operations, which are inconsistent with A.M. Best's expectations for a Superior-rated organization. However, despite certain challenges, A.M. Best continues to consider St. Paul's capitalization as strong. A.M. Best regards St. Paul's continuing core operating segments as stable, well managed businesses that maintain a well-respected franchise.
Employers Reinsurance Downgraded
Standard & Poor's lowered its counterparty credit and financial strength ratings on Employers Reinsurance Corp. and its wholly owned subsidiaries (collectively, ERC) to "AA+" from "AAA" based on ERC's strong market position, very strong capitalization and liquidity, and improved financial leverage offset by deterioration in current operating results. S&P also downgraded its counterparty credit and senior debt ratings on GE Global Insurance Holding Corp. to "AA-"from "AA." The outlook is stable.
Premium growth of approximately 10 to 15 percent is expected from domestic specialty nonlife operations, international operations, and U.S. life operations over the medium term. ERC's net property/catastrophic risk retention decreased significantly post Sept 11 and is not expected to contribute to higher loss ratios prospectively. ROR's are expected to rise to 9 percent in 2002, largely because of better underwriting results prompted by hardening rates, improved cash flows, and lower operational costs. Dividends, typically 35 percent on net income, are expected once capital adequacy levels are restored.
A.M. Best Affirms FM Global
A.M. Best affirmed insurer FM Global's rating of "A+," but placed a negative outlook on the rating. Factors affecting the rating action included the group's solid capitalization, prominent market position within the commercial property market and the long-term benefits to be gained from FM Global's re-underwriting efforts, as well as its commitment to loss prevention and property conservation. Recent price firming in the commercial property marketplace was also a factor.
The negative outlook stemmed from the inherent volatility associated with the company's underwriting of property risks and the over-weighting of equity securities in the company's investment portfolio. A.M. Best stressed, however, that positives included FM Global's solid capitalization, strong liquidity and long-term earnings prospects, along with the company's position as a provider of enhanced engineering technology and insurance solutions to a growing number of insureds. Also noted was FM Global's success in maintaining high customer retention levels.
Hartford Financial Services Affirmed
Fitch Ratings affirmed the fixed income ratings of the Hartford Financial Services Group Inc. (HFSG), including the "A+" senior debt rating, and the "AA" insurer financial strength ratings of its primary property/casualty operation, the Hartford Fire Intercompany Pool (Hartford Fire). The rating outlook is stable.
The rating rationale is based on HFSG's strong and consistent operating performance during difficult market conditions, good balance sheet and broad business diversification. Fitch believes that the recent resolution of the PPG asbestos litigation was favorable to Hartford Fire as the company did not need to set up additional reserves and a major claim is now closed. The company's exposure to losses tied to events of Sept. 11 remain within the company's original estimate of net exposure of $440 million, and losses have subsequently been replaced with capital raised during the fourth quarter of 2001.
Fitch said Hartford Fire's strengths include its diverse market and product profile, solid underwriting discipline, strong balance sheet position and sound operating performance in difficult market conditions. Asset quality also remains excellent.
Fitch's primary concerns for Hartford Fire include challenges the company has encountered in various business lines, with the main focus related to the performance in the assumed reinsurance operation. The ratings also reflect parent company financial leverage and ongoing risks associated with asbestos and environmental loss exposure.
The company's coverage ratios should benefit from improved market conditions in the commercial property/casualty sector. Given the improved conditions, Hartford Fire is likely to report a combined ratio for 2002 that represents solid improvement from recent years.
Gulf Insurance Group Under Review
A.M. Best Co. placed the financial strength rating of "A++" (Superior) of members of the Gulf Insurance Group, Hartford, Conn., under review with negative implications.
The rating action follows Gulf's May 20 announcement that a private-equity fund, Trident II, L.P., will invest $125 million in convertible preferred stock and notes of Commercial Insurance Resources Inc., the parent of the Gulf companies. As a result of this transaction, five Gulf companies will be removed from the Travelers Property Casualty Pool, and the Gulf Pool will be re-established. The negative implications reflect this removal of Gulf from the Travelers Pool.
Prior to becoming part of the Travelers Pool in October 2001, the Gulf Pool was separately rated "A+" (Superior) by A.M. Best. Trident II,L.P. is a private-equity fund managed by MMC Capital, a subsidiary of Marsh & McLennan Cos.
The assignment of a new rating by A.M. Best will take into consideration Travelers' continued majority ownership in Gulf, as well as its role and strategic importance to Travelers' overall operations. Gulf continues to be recognized as one of the leading specialty writers of insurance, including management and professional liability, environmental liability, entertainment, excess and surplus lines, fidelity, surety and umbrella coverages.
The five Gulf companies that will be removed from the Travelers Pool and are affected by the under review action are Atlantic Insurance Co., Gulf Group Lloyds, Gulf Insurance Co., Gulf Underwriters Insurance Co. and Select Insurance Co. In addition, Gulf Insurance Co. U.K. Ltd., a member of the Gulf Group, is also affected.
