A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer ratings (ICR) of “a-” of the new York-based Tower Group Companies and its pooled members. Best also removed from under review with negative implications and affirmed the ICR of “bbb-” of Tower Group, Inc. (TWGP), and assigned a stable outlook to all of the ratings. “Tower and TWGP’s ratings were placed under review on August 5, 2008, following TWGP’s announcement that it had entered into a stock purchasing agreement to purchase CastlePoint Holdings, LTD in a stock-for-stock agreement,” Best explained. “This transaction closed on February 5, 2009, following shareholder and regulatory approval. The addition of CastlePoint has strengthened Tower’s capital position and simplified its organizational structure by combining the two companies and eliminating the dual chief executive officer (CEO) role of Michael Lee, who was CEO of both Tower and CastlePoint and continues to serve as CEO of Tower. Previously, CastlePoint acted as Tower’s reinsurance and risk sharing partner and wrote specialty primary business through its insurance operations derived through CastlePoint Insurance Company (CPIC) (New York), which is now a member of the Tower pool. The ratings reflect Tower’s solid capitalization, very strong operating performance generated during the most recent five-year period and moderate financial leverage at the holding company.”
Standard & Poor’s Ratings Services has raised its counterparty credit and financial strength ratings on Public Service Mutual Insurance Co. and its wholly owned affiliates, Paramount Insurance Co. (NY) and Western Select Insurance Co. (collectively, Magna Carta), to ‘BBB’ from ‘BBB-‘. The outlook on all of these companies is stable. “The upgrade reflects Magna Carta’s good underwriting profitability in the past three years, when price competition across the property/casualty industry was widespread,” explained credit analyst Siddhartha Ghosh. “The rating actions also reflect the group’s very strong capital adequacy and significantly less volatility in its asbestos reserves, as it successfully completed three large commutations in the past couple of years.” S&P added “these commutations reduced the group’s net asbestos reserves to $37 million as of Sept. 30, 2008, from $66 million as of year-end 2006, indicating a 45 percent decline. Magna Carta maintains a good competitive position in its regionally focused small commercial insurance market, where long-standing relationships with the producers, competitive coverage forms, quick response to agents’ quotes through technology, and good customer service helped the companies to maintain strong retention levels of about 80 percent. The group’s recent acquisitions of California-based Business Alliance Insurance Co. (BAIC) and the renewal rights agreement with New Jersey-based Proformance Insurance Co. (for the commercial lines business of Proformance) will modestly increase Magna Carta’s overall premium writings over the next couple of years. Modestly offsetting some of these favorable rating factors are Magna Carta’s geographic concentration in New York state, weak operating cash flow in the past couple of years as a result of some large payments related to asbestos commutations, and a relatively high expense ratio compared with that of its peers.”
A.M. Best Co. has downgraded the issuer credit rating (ICR) to “bbb” from “bbb+” and affirmed the financial strength rating (FSR) of B++ (Good) of Michigan-based Wolverine Mutual Insurance Company, and has revised the outlook for the FSR to negative from stable. The outlook for the ICR is also negative. Best said the “ratings reflect Wolverine’s favorable gross underwriting performance and well-established market presence in Michigan and Indiana. Offsetting these positive rating factors are the company’s marginal capital position, driven by substantial surplus losses (over 20 percent) in 2008, above average leverage ratios and below average net operating performance in comparison to its industry composite.” In addition Best noted that the “current outlook is driven by Wolverine’s suppressed earnings and continued sub-industry performance. While the company has favorable gross underwriting performance due to its aggressive efforts to reduce its risk concentrations through agency management and spreading its geographic exposure, coupled with price realignment, rate increases and insurance-to-value initiatives, these improvements have failed historically to translate into substantial net underwriting gains that would decrease leverage ratios and substantially add to capital at a rate greater than current premium growth. In 2009, Wolverine has re-cast its working layer reinsurance program with the goal of capturing more of these profits on a net basis.”
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