Ratings Recap: Zurich America, Prism, FAIRCO, American Standard

November 30, 2012

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-“ of Illinois-based Zurich American Insurance Company (Zurich US) and its property/casualty pooling affiliates. Zurich US and its affiliates are subsidiaries of Zurich Insurance Company Limited (ZIC) Switzerland), the main operating company of Zurich Insurance Group Ltd. Best has also affirmed those ratings. The ratings “reflect Zurich US’ trend of favorable operating performance over the past five years, strong level of risk-adjusted capitalization and its comprehensive enterprise risk management practices,” said Best. “Additional positive rating factors include Zurich US’ profile as one of the top five writers of commercial property/casualty insurance in the United States, the implicit and explicit support provided by Zurich and the strategic importance of the U.S. operation to Zurich’s worldwide operation” As a partial offsetting factors Best cited the “ongoing competitive environment within the property/casualty markets and Zurich US’ exposure to natural and man-made catastrophes. Although Zurich has not given guidance on any losses as a result of Hurricane Sandy, the losses are expected to be reasonably significant, albeit manageable in the context of Zurich’s overall 2012 results.” Best said “upwards rating actions are unlikely at this point. However, factors that could lead to negative rating actions include deterioration in Zurich US’ underwriting and operating performance to a level below its peers, an erosion of surplus that causes a decline in risk-adjusted capital to a level no longer supportive of the group’s current ratings, any lessening of implicit or explicit support from Zurich or if prospective losses from Hurricane Sandy were significantly outside Zurich’s risk tolerance. The FSR of ‘A+’ (Superior) and ICRs of “aa-” have been affirmed for Zurich American Insurance Company and the following property/casualty pooling affiliates: Fidelity and Deposit Company of Maryland; Empire Fire and Marine Insurance Company; Empire Indemnity Insurance Company; Universal Underwriters Insurance Company; Assurance Company of America; Maryland Casualty Company; Northern Insurance Company of New York; American Guarantee and Liability Insurance Company; American Zurich Insurance Company; Universal Underwriters of Texas Insurance Company; Steadfast Insurance Company; Zurich American Insurance Company of Illinois; Colonial American Casualty & Surety Company

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Vermont-based captive Prism Assurance, Ltd., both with stable outlooks. The ratings reflect Prism’s “strong capitalization and solid operating performance,” said Best. “Also inuring to the ratings is Prism’s strategic role as the captive insurance company of Apogee Enterprises, Inc., and the substantial financial flexibility available to Prism as part of Apogee.” As partial offsetting factors Best cited “Prism’s relatively large retained insurance limits and its limited market profile as a single parent captive. Nonetheless, the ratings recognize the company’s balance sheet strength and conservative underwriting leverage measures.” Best indicated that it could “upgrade Prism’s ratings and/or revise its outlook if there is significant improvement in its underwriting performance and capital or a reduction in its overall net exposure.” Best could also “downgrade the ratings and/or revise the outlook if the company’s Best’s Capital Adequacy Ratio (BCAR) declines, operating performance deteriorates or if insured losses deplete capital.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of New York-based Fair American Insurance and Reinsurance Company (FAIRCO). The outlook for the FSR is stable, while the outlook for the ICR is positive. Best said the affirmations are “based on FAIRCO’s recently executed quota share agreement with its parent company, Transatlantic Reinsurance Company, which will cede 90 percent of all ongoing business to its parent. Simultaneously, all prior FAIRCO business was effectively commuted. Going forward, FAIRCO will focus on various primary lines of business.” Best said it “expects operating results to be profitable and risk-based capitalization to remain fully supportive of the company’s business plan. Due to the strong reinsurance arrangement with Transatlantic, FAIRCO could receive positive rating enhancement if Transatlantic’s ratings are upgraded. Conversely, FAIRCO could experience negative rating actions if Transatlantic’s ratings are downgraded”.

A.M. Best Co. has withdrawn the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Dallas-based American Standard Insurance Company (ASIC), following its merger into its affiliate, The American Insurance Company (AIC), based in Columbus, Ohio. This transaction closed on September 30, 2012, at which time all assets and liabilities of ASIC were merged into AIC.

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