Ratings Recap: Transportation P&C, Ancon, Heddington

June 22, 2012

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Canadian insurer Transportation Property and Casualty Company Inc. (TPCC). Best said the “ratings are based on TPCC’s excellent capitalization and operating performance and a strong enterprise risk management program. Also inuring to the benefit of the ratings is the captive’s favorable profile as part of the South Coast British Columbia Transportation Authority (TransLink).” As partial offsetting factors Best cited TPCC’s “relatively small scale of operations and high exposures.” Best explained that “TPCC is a pure captive insurance company that provides automobile physical damage, general liability and property insurance coverage solely to TransLink. TPCC has demonstrated its usefulness and effectiveness to TransLink over many years by providing flexibility for insurance program structuring and substantial insurance cost efficiencies. It is an integral part of its shareholder’s existing projects and future planning. Key rating drivers that could lead to an upgrading of TPCC’s ratings are a stable underwriting performance as well as reduced overall net exposure over the next few years. Factors that could lead to a negative outlook or a downgrading of the company’s ratings are a material loss of capital from either claims or investments, a reduced level of capital that does not support the ratings or an increase in net retention. TPCC’s ratings are somewhat linked to the rating of TransLink; therefore, unfavorable operating performance or material loss of capital could result in changes to the captive’s ratings.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of {{dq0}} of Canadian insurer Transportation Property and Casualty Company Inc. (TPCC). Best said the {{dq1}} As partial offsetting factors Best cited TPCC’s “relatively small scale of operations and high exposures.” Best explained that “TPCC is a pure captive insurance company that provides automobile physical damage, general liability and property insurance coverage solely to TransLink. TPCC has demonstrated its usefulness and effectiveness to TransLink over many years by providing flexibility for insurance program structuring and substantial insurance cost efficiencies. It is an integral part of its shareholder’s existing projects and future planning. Key rating drivers that could lead to an upgrading of TPCC’s ratings are a stable underwriting performance as well as reduced overall net exposure over the next few years. Factors that could lead to a negative outlook or a downgrading of the company’s ratings are a material loss of capital from either claims or investments, a reduced level of capital that does not support the ratings or an increase in net retention. TPCC’s ratings are somewhat linked to the rating of TransLink; therefore, unfavorable operating performance or material loss of capital could result in changes to the captive’s ratings.”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of {{dq4}} to Panama’s Aseguradora Ancon, S.A., both with stable outlooks. The ratings reflect Ancon’s “adequate capitalization and liquid position, favorable operating performance, strong reinsurance protection and explicit parental support,” said Best. As partial offsetting factors Best cited the company’s “geographic concentration, which subjects it to regulatory and economic risk. Additionally, Ancon’s ratings reflect the country risk associated with its operation in Panama.” Best noted that “Ancon operates as the fifth-largest insurer in Panama, underwriting a diversified product mix targeting the local market. The company writes life insurance lines, health insurance, automobile, property/casualty and surety bonds. Property/casualty lines account for approximately 80 percent of Ancon’s gross written premiums. The company only writes business in Panama and has nine offices located throughout the country. Ancon works with independent agents, brokers and direct writers.” Best also indicated that the company maintains an “adequate level of risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR), which is exposed to major losses arising from its commercial property portfolio. However, the risk is tempered by a strong reinsurance program that is placed with highly rated reinsurers. In 2011, Ancon purchased 100 percent of the shares of Multinational Insurance Company (MIC), a property/casualty insurer domiciled in Puerto Rico. MIC owns 96.6 percent of the shares of Multinational Life Insurance Company, also domiciled in Puerto Rico.
Factors that could lead to a positive outlook or an upgrading of Ancon’s ratings are sustainable long-term improvement in underwriting performance and reduced overall net exposure. Factors that could lead to a negative outlook or a downgrading of the company’s ratings are a material deterioration of capital from either lower than expected operating performance or claims due to a large catastrophic event, a reduced level of capital that does not support the ratings or an increase in net retention.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Bermuda-based Heddington Insurance Limited, both with stable outlooks. The ratings reflect Heddington’s “superior capitalization, consistently positive operating results and the role that it plays as a captive insurance company of Chevron Corporation,” said Best. As a partial offsetting factor Best noted Heddington’s “high net loss exposures, as the coverages provided tend to result in claims that are characterized as low frequency but high severity.” However, Best also indicated that this is “somewhat mitigated by the captive’s good loss history supported by very strong investment income and parental support provided by high yield loans to affiliated companies. Heddington has sufficient capital resources to meet its underwriting related obligations, as measured by Best’s Capital Adequacy Ratio (BCAR). The ratings are based on the consolidated results of Heddington. The ratings further recognize the company’s strong enterprise risk management controls and underwriting expertise and loss controls offered in the structuring of insurance coverages offered by Heddington, as well as the cost effective manner in which those services are delivered. Heddington also gains from Chevron’s global scope, which provides it with a favorable geographic distribution of assumed risks.” Best explained that as a captive insurer, “Heddington, along with Iron Horse Insurance Company (another active Chevron captive), currently provides broad and competitive global insurance products for Chevron and its subsidiaries. The insurance needs of Chevron are supplied through these captive operations (where appropriate) and the commercial market. Heddington and the other Chevron captives provide comprehensive coverage above Chevron’s internal retentions, while Heddington’s reinsurance is placed through a corporate wide plan with the world’s leading providers of capacity, resulting in a diversified and balanced distribution of reinsurers.”

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