Kemper Affirmed
A.M. Best Co. affirmed the financial strength rating of "A-" (Excellent) of the Kemper Insurance Companies, Long Grove, Ill., with a stable outlook and removed the rating from under review with negative implications. The action applies to the group's three pool members, led by Lumbermens Mutual Casualty Company and numerous reinsured affiliates.
It follows Kemper's announcement that the sale of its personal lines business has been closed and the comprehensive strategic relationship with Berkshire Hathaway Inc., including a $125 million investment in the group's commercial casualty and specialty insurance operations, has been finalized.
At year-end 2001, the group entered into a retroactive reinsurance agreement on its asbestos reserves, and in April 2002, it entered into two reinsurance transactions. These transactions incorporated an adverse development reinsurance cover on $3.5 billion core loss reserves and a third-party quota-share reinsurance agreement for 80 percent of some of its middle-market businesses; both of these reinsurance covers are being provided by Berkshire Hathaway.
The transactions, along with the finalization of the sale of its personal lines business and issuance of common stock for a newly formed downstream holding company to Berkshire Hathaway, have re-capitalized the group in accordance with a reduced, more focused book of business. A.M. Best believes these transactions provide near-term surplus relief, $125 million of additional equity capital and a certain degree of protection against adverse loss reserve development.
ERC/GE Global On Watch Negative
Fitch Ratings placed the "AA" long-term issuer rating of GE Global Insurance Holdings Corp. (GE Global) and the "AAA" insurer financial strength rating of Employers Reinsurance Corp. (ERC), GE Global's main operating subsidiary, on rating watch negative. Fitch believes that ERC is increasingly being viewed as a strategic rather than core operation of General Electric (GE), ERC's ultimate parent company. The rating action reflects this view coupled with a recent volatile operating performance by ERC that has weakened it's financial profile when viewed on a "stand alone" basis and has made GE's support increasingly important to maintaining ERC's "AAA" rating.
On June 27, ERC announced it was adjusting prior year estimates, including reserve adjustments, by about $350 million after tax, resulting in a loss of $240 million in the second quarter. Projected year-end 2002 results would be roughly break even, down from a previously expected $200 million.
LWCC Upgraded
Louisiana's largest workers' compensation insurance company, Louisiana Workers' Compensation Corporation (LWCC) announced that A.M. Best has upgraded LWCC's financial strength rating from an "A-" to an "A" (Excellent), Financial Size Category IX ($250 million - $500 million in surplus).
The company said the upgrade reflects the ratings company's "faith in LWCC's ability to practice underwriting discipline in a chaotic marketplace."
LWCC added that while reeling from the effects of underpricing and deteriorating underwriting results, the insurance industry as a whole was dealt a devastating blow on Sept. 11, causing an increase in insurer failures and increased pricing among the rest. It indicated that the company has not been immune to these national market conditions and has had to increase its pricing this year. Even with the increases, the cost of coverage with LWCC is still 40 percent less than when the company entered the marketplace 10 years ago.
Since workers' compensation coverage is required by law for employers in Louisiana and most other states, its availability has a huge impact on the state's economy.
LWCC is a private insurance company owned by the 25,000 Louisiana businesses who are its policyholders.
PMA Capital Corp. Under Review
A.M. Best Co. placed the "A" (Excellent) financial strength rating of PMA Capital Insurance Company and the "A-" (Excellent) rating of PMA Insurance Group under review with negative implications. Additionally, the "A" (Excellent) financial strength rating of Caliber One Indemnity Company has been changed to "NR-3" and the under review negative status has been removed.
The actions follow PMA Capital Corporation's (PMA Capital) first quarter announcement of its intention to exit the excess and surplus (E&S) lines business served by Caliber One, as well as A.M. Best's review of that decision and the company's overall capitalization. PMA Capital's earnings and surplus levels have been severely impacted by Caliber One's losses since 1998, prompting the decision to exit the E&S market altogether. Additionally, significant reserve actions in its operating units over the past six years have weakened PMA Capital's long-term capital generation and current financial flexibility.
In 2000 management restructured PMA Capital's subsidiaries so that PMA Capital Insurance Company owns all of the insurance entities. Due to this stacked structure, Caliber One's underwriting losses have negatively affected the financial strength of PMA Capital Insurance Company. Given negative earnings expectations for this year coupled with a pressing need to upstream dividends to PMA Capital, the insurance subsidiaries will be challenged to accumulate sufficient surplus to support double-digit growth expectations. Assuming no curtailment of premium growth, PMA Capital Insurance Company will need a significant surplus infusion to support the current rating.
While PMA Capital's financial leverage is low at 10 percent, the issue of liquidity is a key concern. As PMA Capital maintains minimal liquid assets, there has been and will continue to be a conflict between surplus levels of the subsidiaries and holding company cash needs.
PMA Capital is currently implementing its capital-raising plan to provide the financial flexibility to pay down its bank debt as well as improve the capitalization of the insurance operations. SEC approval of a universal shelf for $250 million, filed in May 2002, is expected shortly. The capital-raising efforts are expected to conclude by the end of third quarter 2002 at which time A.M. Best will re-evaluate the financial strength ratings.
Meadowbrook Raised
Meadowbrook Insurance Group Inc.'s group rating of its insurance company subsidiaries has been upgraded to "B+" (Very Good), with a positive outlook, by A.M. Best Company. The upgrade reflects Meadowbrook's improved financial condition as a result of its recent successful equity offering. It applies to Meadowbrook's four insurance company subsidiaries: Star Insurance Company, Savers Property & Casualty Insurance Company, Ameritrust Insurance Corporation and Williamsburg National Insurance Company. The outlook is positive.
Meadowbrook Insurance Group maintains a strong market position as a provider of risk-management services to business associations, affinity groups and individual businesses. The group also is benefiting from improved market conditions and reduced competition as several players in this arena have recently exited the market, either voluntarily or involuntarily. The rating acknowledges the prudent risk-selection process and effective loss-control practices, which have enabled the group to generate strong earnings while maintaining a high business-retention percentage.
The group has reported weak operating results and continued adverse loss development experienced on both an accident- and calendar-year basis, which have diminished the group's capital strength in recent years. But A.M. Best believes the recent improvements in the group's financial and operating parameters represent a stabilization of its financial condition.
To submit information to this department e-mail: ijtexas@insurancejournal.com.
Kemper Affirmed
A.M. Best Co. affirmed the financial strength rating of "A-" (Excellent) of the Kemper Insurance Companies, Long Grove, Ill., with a stable outlook and removed the rating from under review with negative implications. The action applies to the group's three pool members, led by Lumbermens Mutual Casualty Company and numerous reinsured affiliates.
It follows Kemper's announcement that the sale of its personal lines business has been closed and the comprehensive strategic relationship with Berkshire Hathaway Inc., including a $125 million investment in the group's commercial casualty and specialty insurance operations, has been finalized.
At year-end 2001, the group entered into a retroactive reinsurance agreement on its asbestos reserves, and in April 2002, it entered into two reinsurance transactions. These transactions incorporated an adverse development reinsurance cover on $3.5 billion core loss reserves and a third-party quota-share reinsurance agreement for 80 percent of some of its middle-market businesses; both of these reinsurance covers are being provided by Berkshire Hathaway.
The transactions, along with the finalization of the sale of its personal lines business and issuance of common stock for a newly formed downstream holding company to Berkshire Hathaway, have re-capitalized the group in accordance with a reduced, more focused book of business. A.M. Best believes these transactions provide near-term surplus relief, $125 million of additional equity capital and a certain degree of protection against adverse loss reserve development.
ERC/GE Global On Watch Negative
Fitch Ratings placed the "AA" long-term issuer rating of GE Global Insurance Holdings Corp. (GE Global) and the "AAA" insurer financial strength rating of Employers Reinsurance Corp. (ERC), GE Global's main operating subsidiary, on rating watch negative. Fitch believes that ERC is increasingly being viewed as a strategic rather than core operation of General Electric (GE), ERC's ultimate parent company. The rating action reflects this view coupled with a recent volatile operating performance by ERC that has weakened it's financial profile when viewed on a "stand alone" basis and has made GE's support increasingly important to maintaining ERC's "AAA" rating.
On June 27, ERC announced it was adjusting prior year estimates, including reserve adjustments, by about $350 million after tax, resulting in a loss of $240 million in the second quarter. Projected year-end 2002 results would be roughly break even, down from a previously expected $200 million.
LWCC Upgraded
Louisiana's largest workers' compensation insurance company, Louisiana Workers' Compensation Corporation (LWCC) announced that A.M. Best has upgraded LWCC's financial strength rating from an "A-" to an "A" (Excellent), Financial Size Category IX ($250 million - $500 million in surplus).
The company said the upgrade reflects the ratings company's "faith in LWCC's ability to practice underwriting discipline in a chaotic marketplace."
LWCC added that while reeling from the effects of underpricing and deteriorating underwriting results, the insurance industry as a whole was dealt a devastating blow on Sept. 11, causing an increase in insurer failures and increased pricing among the rest. It indicated that the company has not been immune to these national market conditions and has had to increase its pricing this year. Even with the increases, the cost of coverage with LWCC is still 40 percent less than when the company entered the marketplace 10 years ago.
Since workers' compensation coverage is required by law for employers in Louisiana and most other states, its availability has a huge impact on the state's economy.
LWCC is a private insurance company owned by the 25,000 Louisiana businesses who are its policyholders.
PMA Capital Corp. Under Review
A.M. Best Co. placed the "A" (Excellent) financial strength rating of PMA Capital Insurance Company and the "A-" (Excellent) rating of PMA Insurance Group under review with negative implications. Additionally, the "A" (Excellent) financial strength rating of Caliber One Indemnity Company has been changed to "NR-3" and the under review negative status has been removed.
The actions follow PMA Capital Corporation's (PMA Capital) first quarter announcement of its intention to exit the excess and surplus (E&S) lines business served by Caliber One, as well as A.M. Best's review of that decision and the company's overall capitalization. PMA Capital's earnings and surplus levels have been severely impacted by Caliber One's losses since 1998, prompting the decision to exit the E&S market altogether. Additionally, significant reserve actions in its operating units over the past six years have weakened PMA Capital's long-term capital generation and current financial flexibility.
In 2000 management restructured PMA Capital's subsidiaries so that PMA Capital Insurance Company owns all of the insurance entities. Due to this stacked structure, Caliber One's underwriting losses have negatively affected the financial strength of PMA Capital Insurance Company. Given negative earnings expectations for this year coupled with a pressing need to upstream dividends to PMA Capital, the insurance subsidiaries will be challenged to accumulate sufficient surplus to support double-digit growth expectations. Assuming no curtailment of premium growth, PMA Capital Insurance Company will need a significant surplus infusion to support the current rating.
While PMA Capital's financial leverage is low at 10 percent, the issue of liquidity is a key concern. As PMA Capital maintains minimal liquid assets, there has been and will continue to be a conflict between surplus levels of the subsidiaries and holding company cash needs.
PMA Capital is currently implementing its capital-raising plan to provide the financial flexibility to pay down its bank debt as well as improve the capitalization of the insurance operations. SEC approval of a universal shelf for $250 million, filed in May 2002, is expected shortly. The capital-raising efforts are expected to conclude by the end of third quarter 2002 at which time A.M. Best will re-evaluate the financial strength ratings.
Meadowbrook Raised
Meadowbrook Insurance Group Inc.'s group rating of its insurance company subsidiaries has been upgraded to "B+" (Very Good), with a positive outlook, by A.M. Best Company. The upgrade reflects Meadowbrook's improved financial condition as a result of its recent successful equity offering. It applies to Meadowbrook's four insurance company subsidiaries: Star Insurance Company, Savers Property & Casualty Insurance Company, Ameritrust Insurance Corporation and Williamsburg National Insurance Company. The outlook is positive.
Meadowbrook Insurance Group maintains a strong market position as a provider of risk-management services to business associations, affinity groups and individual businesses. The group also is benefiting from improved market conditions and reduced competition as several players in this arena have recently exited the market, either voluntarily or involuntarily. The rating acknowledges the prudent risk-selection process and effective loss-control practices, which have enabled the group to generate strong earnings while maintaining a high business-retention percentage.
The group has reported weak operating results and continued adverse loss development experienced on both an accident- and calendar-year basis, which have diminished the group's capital strength in recent years. But A.M. Best believes the recent improvements in the group's financial and operating parameters represent a stabilization of its financial condition.
