Ratings Recap: Dominion, Ardellis, NAGICO, JRG Re

A.M. Best has assigned a financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” to The Dominion of Canada General Insurance Company, based in Toronto, Ontario, Canada, and has assigned a stable outlook for all of the ratings. The rating assignments “reflect Dominion’s good risk-adjusted capitalization, excellent brand recognition, established Canadian market presence nationally, but most notably in Ontario, as well as the implicit and explicit support it receives from its new parent, The Travelers Companies, Inc. (TRV),” Best explained. As partial offsetting factors Best cited “the company’s fluctuating operating performance resulting primarily from legacy issues within its Ontario Auto business, which pre-date’s current ownership, recent increased competition, competitive market conditions (more legislative in nature in Ontario) throughout its underwriting territories combined with lower investment yields—a product of current financial market conditions, as well as a modest increase in the expense ratio due to a vast array of changes brought about by the company’s new ownership.” The report further explained that the “positive rating factors are derived primarily from the Dominion’s purchase by TRV, which was finalized in November of last year. Immediate support came in the form of an adverse development contract, finalized in 2013, that partially covers the Dominion’s reserves in all lines in the event of adverse development in its older accident years. This support has greatly benefited the overall risk-adjusted capitalization of the company, which will now be less susceptible to the company’s legacy issues as it moves forward under its new ownership.” In addition Best noted that “although unprofitable in recent years, significant strides have already been made to redirect efforts within the organization to reverse this trend. Dominion has benefited greatly from its new parent’s commitment of resources to reorganizing and streamlining its operation. The parent and subsidiary’s objectives and initiatives will soon be in lock step. These initiatives include continued efficiencies and synergies through integrated business systems, leveraging its expanded product suite and broker network, strengthening underwriting guidelines and claims management practices, as well as mirroring the enterprise risk management practices of the parent company. Partially offsetting these positive rating factors is variability in the underwriting performance of the company. Underwriting results in the last ten years evidence the risk involved in the Ontario auto marketplace even before the recent times of economic downturns. Historically unfavorable reserve development can mainly be attributed to claims that precede current ownership, but are prevalent in this line. Even with the legislative changes in 2010 in the Ontario auto insurance marketplace, losses continue to develop, shifting to the bodily injury and third party liability lines from the personal accident benefit coverage. However, TRV’s management has committed considerable financial and intellectual resources to improve Dominion’s operations and reserve development. Indications are favorable even though operating performance has yet to reinforce these beliefs due to their recent implementation.” In conclusion Best said it “does not expect to downgrade or place a negative outlook on the ratings in the near to mid-term. Such actions would ensue if Dominion were to have its relationship to its parent and its support change in a manner that affects the operational stance of the company; incur material losses in its capitalization; have a severe reduction in the profitability of its core book of business; or incur severe adverse development within its reserves relative to its peers, as well as the industry’s averages.

A.M. Best has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Bermuda-based Ardellis Insurance Ltd., both with stable outlooks. Best said its ratings of Ardellis “reflect its conservative underwriting leverage, strong level of capitalization and profitable operating results driven by its excellent underwriting performance.” As partial offsetting factors Best cited “Ardellis’ relatively high retention and limited profile as a single parent captive of Universal Forest Products Inc. (UFP). Ardellis provides coverage for general liability, auto liability, workers’ compensation, property and medical stop loss. Ardellis has maintained very conservative underwriting leverage ratios as surplus has remained strong to support its business volume. The company has posted low loss and loss adjustment expense ratios, reflecting its effective risk management practices.” Best also noted that the ratings “recognize Ardellis’ balance sheet strength and conservative underwriting leverage measures.” In conclusion Best said: “Although the outlook for the ratings is stable and not expected to be revised within the next 12-24 months, factors that could lead to a positive outlook and/or an upgrading of Ardellis’ ratings are material and sustained improvement in its underwriting performance and capitalization. Factors that could lead to a negative outlook and/or a downgrading of the ratings are material deterioration of capital from the company’s claims, investments and/or a reduced level of capital that does not support its ratings as measured by Best’s Capital Adequacy Ratio (BCAR).”

A.M. Best has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit ratings of “bbb” of National General Insurance Corporation (NAGICO) N.V., based in St. Maarten, and Nagico Insurance Company Limited (NICL), based in Anguilla. The outlook for all ratings is stable.” Best said the ratings” reflect NAGICO and NICL’s overall profitability, improved underwriting results, adequate risk-adjusted capitalization and NAGICO’s dominant market presence in its domestic market. NAGICO is the leading property/casualty insurer in St. Maarten with a dominant market share in the Dutch Caribbean, while NICL has a strong market presence in several overseas markets. Also reflected in the ratings is the common ownership and shared systems of NAGICO and NICL.” In addition Best noted: “NAGICO, and to a lesser extent, NICL, have experienced strong, organic surplus growth through retained earnings, which has been derived from positive overall earnings and minimal dividend requirements. The continued surplus growth has resulted in more than adequate consolidated risk-adjusted capitalization. Furthermore, NAGICO has recently begun to build out and formalize its enterprise risk management program, which is led by a dedicated Chief Risk Officer.” As partial offsetting factors Best cited “NAGICO and NICL’s rapid growth phase, which the group is in the process of winding down, and the highly competitive regional markets in which both companies operate. Additionally, NAGICO and NICL, like other Caribbean insurers, have significant exposure to catastrophic losses. Both companies manage this risk through the utilization of reinsurance to limit their catastrophe exposure to a manageable level and to protect their surplus.” In conclusion best said: “Factors that could contribute to rating enhancement include continued improvement in NAGICO and NICL’s underwriting performance and risk-adjusted capitalization, consistent long-term overall profitability and an upgrade in St. Maarten and Anguilla’s country risk tier ratings. Factors that could lead to negative rating actions would include deterioration in NAGICO and NICL’s risk-adjusted capitalization or underwriting performance and a downgrade in St. Maarten and/or Anguilla’s country risk tier ratings.”

A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of ‘A’- (Excellent) and the issuer credit ratings (ICR) of “a-” of Bermuda-based JRG Reinsurance Company, Ltd. (JRG Re) and its U.S.-based insurance affiliates. The ultimate parent for these companies is Franklin Holdings (Bermuda) Ltd. Franklin and JRG Re are both domiciled in Hamilton, Bermuda, and the U.S. subsidiaries are based in Richmond, VA and Raleigh, North Carolina. Best explained that the revised outlook “reflects JRG Re’s solid risk-adjusted capital, improved underwriting results under the relatively new management team assembled at JRG Re and its exit from the short-tailed, poor-performing crop insurance line of business. JRG Re has increased policyholder surplus by 23 percent to $371 million in 2013 from $301 million in 2010. The companies lowered their consolidated combined ratios to 91 in 2013 from 105 and 104 in 2012 and 2011, respectively. Improved underwriting results in 2013 reflect the impact of corrective underwriting actions taken by JRG Re in 2012 and 2013, most notably in pricing increases and the termination of a number of unprofitable agency relationships, in addition to the exit from the crop business at the end of 2012.” The report also said the ratings “reflect JRG Re’s strong consolidated capitalization, experienced management team and solid business profile. This includes potential earnings from the company’s efforts to write third-party working layer reinsurance business from U.S.-based specialty insurers and supplementing the business that is derived from significant quota share reinsurance agreements with its onshore affiliates. These positive rating factors are partially offset by the challenges presented by a competitive casualty reinsurance market and the recent weakness in underwriting results due to workers’ compensation and the assumed crop reinsurance losses. JRG Re targets small to medium-sized specialty companies and maintains a diversified reinsurance portfolio weighted toward short- to intermediate-tail casualty business. The balance of its written premium has historically been derived from the net retained property/casualty exposures of its onshore affiliates. Effective January 1, 2013, all of its U.S. affiliates participate in an intercompany pooling agreement, retaining 30 percent of net business with 70 percent ceded to JRG Re.” In conclusion Best said: “Positive rating actions could occur if JRG Re’s risk-adjusted capital remains strong and its underwriting profitability is improved and sustained over the medium term. Conversely, negative rating actions could occur if the company’s operating and/or underwriting results reflect a return to weaker performance; and consequently, risk-adjusted capitalization falls below Best’s expectations. The U.S. affiliates’ ratings are directly correlated to the ratings of JRG Re and receive full rating enhancement due to the explicit and implicit support provided by JRG Re. The FSR of ‘A-‘ (Excellent) and the ICRs of “a-” have been affirmed for the following affiliates of JRG Reinsurance Company, Ltd.: James River Insurance Company; James River Casualty Company; Stonewood General Insurance Company; Stonewood Insurance Company; Stonewood National Insurance Company.

Topics USA AM Best Canada