Ratings Recap: Conifer/White Pine, Millers First

July 2, 2012

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B++’ (Good) and downgraded the issuer credit rating to “bbb” from “bbb+” of Conifer Insurance Company. Best also affirmed the FSR of ‘B+’ (Good) and ICR of “bbb-” of its affiliate, White Pine Insurance Company (formerly known as Mid-Continent Insurance Company). The outlook for all of the ratings is stable. Both companies are wholly owned subsidiaries of Conifer Holdings, Inc. (CHI), a Michigan-based property/casualty insurance holding company. Best said that “while Conifer maintains strong risk-adjusted capitalization, the downgrading of its ICR reflects the inherent challenges in attracting new profitable business in the midst of a soft market. In 2011, Conifer sourced nearly all of its business from White Pine (via quota share reinsurance), providing Conifer immediate access to a mature legacy business with demonstrated loss experience.” However, Best noted that as of “January 1, 2012, this treaty was terminated. Alternatively, Conifer will continue to build its business and grow through other relationships. Conifer was acquired on December 23, 2009, by the former management team of North Pointe Insurance Company.” Best explained that the rating actions are based on its “consideration of the prior successes of Conifer’s management and its intention to focus on specific books of business that fall within management’s areas of historical underwriting expertise, as well as its concern about the considerable amount of execution risk involved in Conifer building a profitable portfolio, particularly in light of today’s prevailing competitive market conditions for specialty commercial business.” Best indicated that “positive actions on the ratings and/or outlook of Conifer could be warranted over time, if it successfully executes its plan to profitably build its book of business while leveraging its underwriting expertise and relationships with the agents and brokers producing the business; thus, maintaining risk-adjusted capitalization that comfortably supports the ratings. Conversely, if the company begins to generate deteriorating underwriting or operating results over the near term as it builds its portfolio, leading to a weakening in its risk-adjusted capitalization, negative rating actions could result.” Best said the “rating affirmations for White Pine recognize its adequate capitalization, improved prior year loss reserve development and the expectation of sustained profitability, which would be consistent with its most recent trends. The latter speaks to a number of underwriting initiatives implemented by management in 2009, 2010 and 2011, including multiple rate increases, coverage exclusions and restrictions to specifically address the issues that contributed to White Pine’s unprofitable underwriting history prior to Conifer’s ownership. As for White Pine, positive rating actions could occur if recent underwriting and operating trends relative to current and prior year underwriting profitability lead to improved performance and organic generation of earnings. Negative rating actions could result from a return to negative claim frequency or severity trends, and if the favorable loss reserve development of recent years was reversed.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘E’ (Under Regulatory Supervision) from ‘C++’ (Marginal) and the issuer credit rating (ICR) to “rs” from “b” of Illinois-based Millers First Insurance Company. Best has also downgraded the FSR to ‘C-’ (Weak) from ‘C++’ (Marginal) and the ICR to “cc” from “b” of Millers’ wholly owned subsidiary, Wisconsin-based Millers Classified Insurance Company, and has also placed the ratings under review with negative implications. “The rating actions on Millers follow the announcement that the Illinois Department of Insurance has issued an order of conservation for Millers, effective June 11, 2012,” Best explained. “The order follows the company’s severe catastrophe loss activity throughout 2010 into the current quarter, which has severely depleted its capital position. An order of rehabilitation is pending and all valid claims continue to be paid in full. While the order does not include Classified, since it is domiciled in Wisconsin and is outside the regulatory purview of the Illinois Department of Insurance.” Best said the downgrading of the ratings for Classified is “primarily due to its current financial condition with a reduction in capitalization primarily from the same storms. The under review status of Classified is due to its potential for additional underwriting losses, which could further weaken its capital position, as well as the potential for some form of regulatory action relating to Classified’s location.” Best said it “expects to resolve the under review status of Classified once these issues have been clarified and/or resolved.”

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