Ratings: Triad, Crawford, Liberty (Debt), Nat’l. Lloyd’s/Summit, Grange Mutual, Horace Mann, American Community

May 27, 2008

Standard & Poor’s Ratings Services announced that all of its ratings on Triad Guaranty Inc.(TGIC), currently ‘BB’, and its mortgage insurance subsidiary, Triad Guaranty Insurance Corp. (Triad), currently ‘BBB’, “will remain on CreditWatch with negative implications.” Credit analyst James Brender indicated that S&P “expects to resolve the CreditWatch within two months.” The resolution could vary “from an affirmation with a negative outlook to a downgrade of multiple notches,” said S&P. The rating agency also explained: “This follows TGIC’s announcement that Freddie Mac suspended Triad’s ability to provide coverage for mortgages sold to Freddie Mac. Triad is currently appealing Freddie Mac’s decision. During the appeal process, Triad will be eligible to insure mortgages sold to Freddie Mac. Regardless of the outcome of the appeal, the ratings on Triad and TGIC will remain at their current level but on CreditWatch with negative implications.”

Standard & Poor’s Ratings Services has revised its outlook on Crawford & Co. to stable from negative, and has affirmed its ‘BB-‘ counterparty credit rating. “The stable outlook is based on Crawford’s significantly better-than-expected operating results in the first quarter of 2008 and the likelihood that it will have substantially better year-end 2008 earnings of at least $24 million versus $16 million in 2007,” explained credit analyst Damien Magarelli. S&P said it expects Crawford to “have strong revenues, as the revenues from a significant number of accounts won in 2007 will be recognized in 2008.
As of March 31, 2008, Crawford has met all of our performance expectations. In 2008, Crawford also updated its group strategies to better accomplish its target-driven corporate objectives by constantly improving the quality of its client services. Crawford also realigned its compensation structure to achieve its financial objectives, with new benchmarks to evaluate individual employees’ performance.”

A.M. Best Co. has assigned a debt rating of “bb+” to the forthcoming issuance of $1.25 billion Series C 10.75 percent junior subordinated debentures of Liberty Mutual Group, Inc. (LMGI) The debentures have a scheduled maturity of 50 years. The anticipated settlement date is May 29, 2008. The outlook for the rating is stable. Best noted: “Proceeds from the offering will be used to strengthen capitalization in preparation for LMGI’s previously announced intent to acquire Safeco Corporation (Safeco).”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and upgraded the issuer credit rating (ICR) to “a+” from “a” of National Lloyds Insurance Company. The outlook for the ratings is stable. Best also revised the outlook to positive from stable, and affirmed the FSR of ‘A-‘ (Excellent) and the ICR of “a-” of American Summit Insurance Company, an affiliate of National Lloyds. Both companies are subsidiaries of NLASCO, Inc., which is owned by Hilltop Holdings, Inc. Both companies are domiciled in Texas. “The rating actions on National Lloyds reflect the company’s continued solid underwriting performance, favorable risk-adjusted capitalization and local market expertise within their niche of the personal property insurance market,” said Best. “These positive rating factors are somewhat offset by National Lloyds’ geographic concentration of risk primarily in the Texas marketplace and elevated underwriting expense ratio.” Best said the upgrade reflects its “acknowledgement of the company’s sustained superior performance in relation to its peers.” The rating actions on American Summit “reflect the company’s favorable risk-adjusted capitalization, geographic spread of risk in moderately catastrophe prone areas and successful underwriting performance,” Best continued. “These positive rating factors are somewhat offset by American Summit’s elevated underwriting expense ratio and low investment yields. The positive outlook reflects A.M. Best’s expectation that risk-adjusted capitalization and underwriting performance should continue to trend favorably.”

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Grange Mutual Fire Insurance Company of Troy, Penna. The ratings reflect Grange Mutual’s conservative underwriting leverage, adequate balance sheet liquidity and local market knowledge as a provider of homeowners’ coverage in north central Pennsylvania,” said Best. “These positive rating factors are partially offset by the company’s historically fluctuating operating results due to its business concentration, which exposes its performance to weather-related losses, an elevated expense structure due to the company’s relatively small scale of operations, and above average investment leverage.” The outlook revision to stable “is based on Grange Mutual’s improved operating performance in recent years aided by improved underwriting standards,” best explained. “Further, Grange Mutual’s investment leverage has been on a declining trend in recent years due to a shift in emphasis away from equities and toward cash and short-term investments.”

A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Horace Mann Educators Corporation’s (HMEC’s) P/C group, Horace Mann Insurance Group (Horace Mann), its members and HMEC’s life/health insurance company, Horace Mann Life Insurance Company. All the companies are headquartered in Springfield, Ill. Best also affirmed the ICR of “bbb-” and debt ratings of HMEC. The outlook for all ratings is stable. Best stated: “The ratings reflect Horace Mann’s strengthened capitalization driven by the corrective measures management has taken in recent years to its operations. The 2007operating results have been driven by positive underwriting results in the homeowners, private passenger auto liability and private passenger auto physical damage lines. The performance of Horace Mann’s property book has improved markedly as rate increases and improvements in underwriting terms have continued to produce earnings results. The group also benefits from its expertise in personal line products for the educator market, which has enabled it to obtain numerous endorsements from local, state and national educational associations. Horace Mann’s negative rating factors center around its continued above average underwriting leverage measures and exposure to severe weather losses in its property book, despite the marked improvements the company recently has made.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘B+’ (Good) and issuer credit rating (ICR) of “bbb-” of American Community Mutual Insurance Company. Best explained the “negative outlook reflects a series of operational missteps made by American Community over the past few years, which contributed to net losses and corresponding lower surplus reported in 2006-2007 and thus far in 2008. These missteps involved inconsistent underwriting, inadequate product pricing and insufficient reserving. The write-offs of a discontinued information system in 2006 and a subsidiary, Precedent Insurance Company, in 2007 also contributed to the sizeable net losses. Additionally, in first quarter 2008, American Community reported a $4.1 million net loss from elevated general expenses, higher paid claims than projected and reserve strengthening.” However, best did indicate: “Despite the recent net losses, American Community still maintains an adequate risk-adjusted surplus level for its insurance and investment risks. The company’s premium revenue and earnings derive primarily from marketing mostly major medical products to groups and individuals chiefly in seven midwestern states and Arizona. Although the company recently implemented a number of corrective actions to improve future operating results, A.M. Best anticipates its future earnings will be challenged by an increasingly competitive major medical market dominated by larger managed care carriers with deeper network discounts.”

Topics Lloyd's AM Best

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