American Re Under Review

A.M. Best Co. placed the financial strength ratings of “A” (excellent) for American Re Corporation Group’s member companies under review with negative implications. Member companies include American Re-Insurance. Co., American Alternative Insurance Corp. and The Princeton Excess & Surplus Lines Insurance. Co., all domiciled in Wilmington, Del. Best also placed the issuer credit rating of “a” for American Re-Insurance and the ICR and senior debt ratings of “bbb” of American Re Corp. of Princeton, N.J., under review with negative implications.

American Re’s parent, Munich Reinsurance, recently noted it plans an in-depth reserve review at American Re to determine if additional strengthening might be required for prior year reserves. The quality of American Re’s risk-adjusted capitalization and underwriting performance, as well as its earnings trend over the past five years, have been negatively affected by significant and repeated adverse development charges covering the 1997-2001 accident years, asbestos charges and catastrophe-related exposure.

Therefore, despite any anticipated future capital support from Munich Re, American Re’s ratings remain under pressure due to ongoing concerns over the ability of its current management team to improve operating performance and sustain capitalization without a continued material dependence on its parent.

The financial strength ratings of “A” (excellent) have been placed under review for the following subsidiaries of American Re Group: American Re-Insurance Company, American Alternative Insurance Corp. and the Princeton Excess & Surplus Lines Insurance Company. The issuer credit rating of “a” has been placed under review for American Re-Insurance. Co.

Beazley’s New U.S. Company Assigned

A.M. Best Co. assigned a financial strength rating of “A-” (excellent) and an issuer credit rating of “a-” to Beazley Insurance Company Inc. of Omaha, Neb., a newly formed U.S. insurer that is part of the Beazley Group plc. Both ratings have a stable outlook.

The ratings reflect the initial capitalization and business plans of BICI, the favorable track record of the Lloyd’s Syndicates and the experienced senior management teams at both the syndicates and BICI, according to the rating organization.

The ratings also reflect the near-term earnings prospects to be derived from BICI’s planned focus on small to mid-sized accounts within the specialty admitted market; management’s intention to prudently manage its capital; and the explicit support provided through a quota share reinsurance agreement with Beazley syndicates at Lloyd’s (syndicates 623 and 2623). The ratings also acknowledge BICI’s quality balance sheet, which is unencumbered by debt and prior year reserve liabilities.

BICI’s initial capital consists of approximately $50 million, established via the contribution of funds from Beazley, a publicly quoted company on the London Stock Exchange. Best analyzed the financial strength of the Beazley syndicates in light of the quota share support being provided, as well as the debt leverage and interest coverage at the parent company level, and is satisfied they can support the individual ratings of BICI. In Best’s view, BICI’s conservative leverage targets will enable it to maintain capitalization that will comfortably support its risk profile as a start-up insurer.

The ratings also reflect the benefit of additional financial flexibility offered by the parent company and the strong operating fundamentals exhibited by the Beazley syndicates that are expected to transfer to BICI.

The formation of BICI is part of Beazley’s expansion strategy, which includes building a significant local U.S.-based operation focused on underwriting small to mid-sized, low hazard specialty admitted risks to complement Beazley’s large U.S.-sourced surplus lines business written through Lloyd’s. By having an admitted operation in the U. S., management expects to garner greater control over the quality and value of the portfolio, as well as the costs of acquiring and servicing the business.

These positive rating factors are offset by the significant challenges and uncertainties associated with newly formed, start-up companies.

New St. Paul Travelers Pool Upgraded

Insurance ratings standard-bearer A.M. Best Co. assigned a financial strength rating of “A+” (superior) and an issuer credit rating of “aa-” to the members of the newly formed pool, St. Paul Travelers Insurance. Cos., headquartered in St. Paul, Minn.

This rating action follows the St. Paul Travelers Cos. Inc.’s announcement that it has combined the St. Paul and Travelers pools, forming a new pool effective July 1, 2005, retroactive to Jan. 1, 2005. The company also announced it has merged Gulf Insurance Co.-the lead company of the former Gulf Insurance Group-with and into Travelers Indemnity Co., the lead company of the new pool, effective July 1, 2005. The 28 participants in the new pool, 17 reinsured affiliates and Travelers Casualty and Surety of America constitute the 46 members of Best’s new rating unit, St. Paul Travelers Cos.

As a result of the new pooling agreement, Best upgraded the financial strength ratings to “A+” (superior) from “A” (excellent) and the issuer credit ratings to “aa-” from “a” of the 18 members of the former St. Paul Cos. Best also affirmed the financial strength ratings of “A+” (superior) and issuer credit ratings of “aa-” of the 24 members of the former Travelers Property Casualty Pool. The agency also upgraded the financial strength ratings to “A+” (superior) from “A-” (excellent) and issuer credit ratings to “aa-” from “a-” of four members of the former Gulf.

Best said the upgraded ratings of the members of the former St. Paul and Gulf groups reflect their combining with the larger, higher-rated and more strongly capitalized group of companies, the former Travelers. St. Paul Travelers’ rating reflects the combined groups’ strong capitalization, superior earnings power and dominant market profile in commercial, specialty and personal lines. In addition, Best said the rating recognizes that about $1.7 billion of proceeds from St. Paul Travelers’ divestiture of Nuveen Investments Inc. will be contributed to its insurance subsidiaries in the third quarter.

Hartford Financial Services Affirmed

A.M. Best Co. affirmed the financial strength ratings of “A+” (superior) and assigned issuer credit ratings of “aa-” to the Hartford Insurance Pool and its members. Concurrently, Best assigned an ICR of “a-” to Hartford Financial Services Group Inc. and affirmed all its outstanding debt ratings. All ratings have a stable outlook.

The ratings reflect the pool’s superior capitalization, very strong operating results and excellent business position. The pool enjoys significant operational breadth and depth in desired markets and utilizes its advantageous scale and scope of product offerings, distribution capabilities, technological expertise and service focus to respond to market trends in core business lines serving commercial and personal lines insurance markets.

Furthermore, due to considerable rate increases from prior pricing periods earning through the income statement, enhanced risk selection and cost cutting initiatives, the pool generated solid underwriting results in core business lines, as evidenced by a reported year-end 2004 statutory combined ratio of 99.7 with strong operating momentum continuing through the first quarter 2005.

Somewhat offsetting these strengths are the continued exposure to adverse loss reserve development from prior accident years, softening market conditions with regard to premium pricing and modest concerns pertaining to the various subpoenas that The Hartford has received related to certain regulatory probes of the insurance industry.

Topics USA Excess Surplus Reinsurance AM Best