R&SA-USA Downgraded
A.M. Best Co. downgraded the financial strength ratings of Royal & SunAlliance USA Insurance Pool and the Royal Surplus Lines Insurance Co., based in Connecticut to "C++" (marginal) from "B" (fair). The surplus lines company is a wholly owned subsidiary of Royal Indemnity Co., a member of the pool. The rating outlook is negative.
This rating action follows RSAUSA's announcement of a $240 million reserve charge primarily related to prior year workers' compensation business. According to Best given the magnitude of this charge, the pool's capitalization has deteriorated to a level no longer supportive of its previous "B" (fair) rating.
In Best's opinion there is potential for additional reserve development in light of the significant and lengthy history of reserve deficiencies experienced by the U.S. entities. As a result of the significant level of uncertainty regarding all of these issues, the outlook remains negative.
Best said it placed the financial strength ratings of "B" (fair) of Viking Insurance Co. of Wisconsin, Peak Property and Casualty Insurance Corp. in Colorado and Viking County Mutual Insurance Co. in Texas under review with negative implications.
Management is continuing with its plan to withdraw these companies from the pool to become direct and wholly owned subsidiaries of Royal Group Inc., the group's U.S.-based holding company. As separately owned and capitalized entities, these companies would be independent of the RSAUSA pool and appropriately capitalized to continue writing the profitable non-standard automobile book of business. The Viking and Peak companies' ratings will remain under review until management's plans, which are subject to regulatory approval, are implemented.
Montpelier Re Unaffected By Dividend
Standard & Poor's Ratings Services said its ratings on Montpelier Reinsurance Ltd. of "A" (positive) and Montpelier Re Holdings Ltd. "BBB" (positive) are unaffected by Montpelier's declaration of a $390 million special dividend payable on March 31, 2005, to shareholders of record on March 15, 2005.
Montpelier's year-end 2004 capital adequacy--incorporating an exposure-based charge for property catastrophe risks as of Jan. 2005--was about 200 percent, which was well in excess of S&P's expectation that Montpelier maintain capital above 160 percent. Montpelier's use of a special nonrecurring dividend as a tool to manage capital within rating expectations is viewed as an appropriate capital-management methodology and consistent with the current rating and outlook.
The ratings on Montpelier reflect its market position and scale within the Bermuda reinsurance market, strong operating performance and strong financial flexibility. The company's capital adequacy is also viewed as a strength. Offsetting these factors are Montpelier's limited track record, concentrated management team and high risk for catastrophe losses.
The positive outlook reflects S&P's increased confidence level that Montpelier has made strides in establishing a successful track record as a successful property catastrophe reinsurance company since its inception in 2002. This success is demonstrated in Montpelier's operating performance in 2004 and in the January 2005 renewals.
Adirondack Ins. Exchange Assigned
Demotech Inc. assigned a Financial Stability Rating of "A" (exceptional) to Adirondack Insurance Exchange. Adirondack Insurance Exchange will be owned by its policyholders and managed by Adirondack AIF LLC.
