Ratings Round Up: Travelers, Atlantic American

October 3, 2007

A.M. Best Co. has upgraded the financial strength ratings (FSR) to A+ (Superior) from A (Excellent) and issuer credit ratings (ICR) to “aa-” from “a” for Northland Insurance Co. (St. Paul, Minn.), Northfield Insurance Co. (West Des Moines, Iowa), Northland Casualty Co. (St. Paul, Minn.), American Equity Specialty Insurance Co. (Hartford, Conn.) and American Equity Insurance Co. (Phoenix, Ariz.), members of TNC Insurance Group.

As a result of a series of affiliated transactions entered into by The Travelers Companies, Inc. in 2007, designed to further consolidate the intercompany pooling agreements among its various subsidiaries, TNC Insurance Group’s five members have become members of Travelers Insurance Companies, the first four as group members and American Equity Insurance Co., as a reinsured member. Travelers Insurance Companies has an FSR of A+ (Superior) and ICRs of “aa-“. In addition, Fidelity and Guaranty Insurance Underwriters, Inc., St. Paul Guardian Insurance Co. and St. Paul Mercury Insurance Co., all reinsured members of Travelers Insurance Companies, have become group members of Travelers Insurance Companies, and their FSRs of A+ (Superior) and ICRs of “aa-” have been affirmed. Travelers affiliated transactions became effective October 1, 2007, retroactive to January 1, 2007. The outlook for all ratings is stable.

The ratings of the remaining members of Travelers Insurance Companies remain unchanged.

Concurrently, A.M. Best has withdrawn the FSR of A (Excellent) and ICR of “a” and assigned a category NR-5 (Not Formally Followed) to TNC Insurance Group.

Effective October 1, 2007, Discover Reinsurance Co. was merged with and into Travelers Indemnity Co., Travelers’ flagship company and a member of Travelers Insurance Companies. As a result, A.M. Best has withdrawn the FSR of A- (Excellent) and the ICR of “a-” of Discover Re.

Atlantic American
A.M. Best Co. has taken various rating actions on the financial strength ratings (FSR) and issuer credit ratings (ICR) of the property/casualty and life/health subsidiaries of Atlantic American Corp. (Atlanta, Ga.). A.M. Best also has affirmed the ICR of “bbb-” of AAME. The rating outlook is negative.

Additionally, A.M. Best has downgraded the FSR to B+ (Good) from B++ (Good) and the ICR to “bbb-” from “bbb” of Georgia Casualty & Surety Co. The outlook for both ratings has been revised to stable from negative. In addition, A.M. Best has affirmed the FSRs of A- (Excellent) and the ICRs “a-” of Association Casualty Insurance Co. (Austin, Texas) and American Southern Group. American Southern consists of American Southern Insurance Co. and its wholly owned subsidiary, American Safety Insurance Co., both of Atlanta. The outlook for ACIC’s ratings is negative, and the outlook for American Southern’s ratings is stable.

Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and the ICR of “bbb” of the life/health insurance company, Bankers Fidelity Life Insurance Co. The outlook for these ratings is stable. The company continues to operate profitably, primarily focusing on the increasingly competitive senior life/health insurance market.

AAME maintains reasonable unadjusted financial leverage of total debt plus preferred stock-to-total tangible capital of 26%, with unadjusted financial leverage of 38% at June 30, 2007. Interest coverage measures have weakened, primarily due to the heavy expense load associated with the ACIC and GCSC operating subsidiaries in conjunction with a significant reduction in premium income at GCSC. A.M Best expects the majority of AAME’s debt service to be provided by its American Southern operating unit. Furthermore, AAME maintains a sizable cash cushion of approximately $9 million on its own balance sheet in support of its fixed obligations.

The ratings of GCSC reflect its continued poor underwriting results, heavy cost structure relative to a reduced level of premium income (due to the company’s withdrawal from catastrophe-prone coastal regions), and history of adverse loss reserve development. These rating factors are somewhat offset by GCSC’s solid capitalization and the support afforded by AAME.

ACIC’s ratings recognize its adequate capitalization, improved underwriting and operating performance through year-end 2006 and initiatives taken in recent years to diversify geographically throughout the southern region, along with its product mix. These positive rating factors are offset by ACIC’s anticipated weakness in 2007 earnings due to competitive market conditions and lack of scale relative to fixed expenses, and historic adverse loss reserve development during the 2001 through 2004 period.

The rating affirmations of American Southern are based on the group’s excellent capitalization, solid operating performance and conservative management philosophy. However, the company’s ability to retain earnings has been hampered by considerable stockholder dividends, which historically have been used to service the debt held at AAME.

Source: A.M. Best Company

Topics Carriers AM Best

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