Ratings Roundup: Wawanesa, AmerInst, First Net

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” of The Wawanesa Mutual Insurance Company, which is based in Winnipeg, Manitoba. Best has also affirmed the FSR of ‘A’ (Excellent) and ICRs of “a” of Wawanesa’s wholly owned property/casualty subsidiary, San Diego-based Wawanesa General Insurance Company (WGIC) and its wholly owned life/health subsidiary, Manitoba-based Wawanesa Life Insurance Company. The outlook for all ratings is stable. Best concurrently withdrew the FSR of ‘A+’ (Superior) and ICR of “aa-” of The Wawanesa Mutual Insurance Company US Branch, based in San Diego, as it has been dissolved. The ratings and outlook of Wawanesa are reflective of its “superior risk-adjusted capital, balance sheet strength, good geographic diversification and market leadership position,” Best explained. “Wawanesa maintains a very large equity base, which continues to produce superior risk-adjusted capital results and balance sheet strengths. The company ranks in the top 10 within most major markets and is Canada’s largest mutual in terms of equity and premiums written.” Best added that Wawanesa’s “ranking among market leaders has been achieved through steady, modest growth attributed to its successful long-term relationships with brokers, which has helped the company maintain a strong regional presence. As partial offsetting factors Best cited Wawanesa’s “concentration in personal lines auto, intense competitive pricing pressure and an increasing trend of more frequent and severe storm losses across Canada. The company is experiencing intense pricing pressure on its largest premium segment auto, which is heavily regulated.” In addition Best observed that in 2011, Wawanesa’s results on property lines “have been challenged by a continuing pattern of more frequent and severe storm losses as well as losses from the Slave Lake wildfires.” However, Best indicated that despite these several challenges, it nonetheless anticipates that Wawanesa “will continue to maintain superior capital strength. Wawanesa’s ratings and outlook may come under negative pressure if an unfavorable earnings trend develops and its capital erodes. However, the company’s ratings could benefit from a favorable earnings trend that outperforms peers, while maintaining superior risk-adjusted capitalization.”

A.M. Best Co. has assigned an issuer credit rating (ICR) of “bbb-” to AmerInst Insurance Group, Ltd, which is the holding company of AmerInst Insurance Company Ltd. Both entities are domiciled in Hamilton, Bermuda. The ICR for AmerInst Insurance Group, Ltd is derived from the ICR of “a-” and the financial strength rating of ‘A-‘ (Excellent) of AmerInst, which were affirmed on September 12, 2011. The outlook for all ratings is stable. The ratings “reflect AmerInst’s strong capitalization and experienced management team as well as its niche expertise as a reinsurer of professional liability policies,” said Best. As partial offsetting factors Best noted the company’s “narrow spread of underwriting risk, in addition to the execution risk associated with the implementation of a new business plan.”

A.M. Best Co. has upgraded the issuer credit rating (ICR) to “bbb+” from “bbb” and affirmed the financial strength rating of ‘B++’ (Good) of Guam-based First Net Insurance Company, both with stable outlooks. The ICR upgrade “reflects the commitment of the management to reduce the catastrophe exposure of First Net and enhance the company’s enterprise risk management framework and practice,” Best explained. The ratings also recognize First Net’s “prudent underwriting practice and support from its shareholders. First Net’s recorded claims experience has consistently outperformed its industry peers, reflecting the good quality of its book and its prudence in selecting and pricing risks. Its underwriting leverage has been trending downward over the past five years due to the commitment of First Net’s shareholders to continuously strengthen the capital base through capital injections without any dividend payouts.” Best also indicated that First Net “has a narrow spread of geographic risk with its business concentration in Guam, where it is prone to potential catastrophic perils. The company is thus exposed to potentially severe losses from catastrophic risk. To protect its capital base against sizable losses, First Net has tightened its underwriting guideline regarding policies with earthquake exposure and has increased its reinsurance catastrophe limit in 2011.” Best said it expects that First Net’s “risk-based capitalization will be in an upward trend stemming from the management’s initiatives to control the catastrophe exposure, in addition to consistent and favorable generation and retention of earnings.” As partial offsetting factors Best cited the Company’s “exposure to potential natural catastrophe perils and a high expense ratio. First Net historically has a high cost structure relative to the industry average, mainly driven by the commission paid to Moylan’s Insurance Underwriters, Inc.”