Ratings: HSB, Tall Pines, North Sea, MEMIC Indemnity, American Physicians, West Bend

April 14, 2009

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A+’ (Superior) from ‘A’ (Excellent) and issuer credit ratings (ICR) to “aa-” from “a” of The Hartford Steam Boiler Group and its members (together, known as HSB Group). All ratings have been removed from under review with positive implications and assigned a stable outlook. “The rating actions reflect HSB Group’s superior level of risk-adjusted capitalization, consistent stable reserving history and continued excellent underwriting performance,” said best. “HSB Group remains a leading provider of equipment breakdown insurance and engineering, boiler and machinery inspection services.” Best also indicated that “HSB Group’s ratings are positively impacted by the acquisition of its holding company, HSB Group, Inc., by its new parent, Munich Reinsurance Company.” The transaction received final regulatory approval and closed on March 31, 2009.

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Vermont-based captive Tall Pines Insurance Company, both with stable outlooks. “The ratings are based on Tall Pines’ good capitalization levels, quality management team with numerous years of industry experience and a strong risk management program,” Best explained. “Partially offsetting these positive rating factors are Tall Pines’ high expense ratio, narrow business scope as a single parent captive with limited stand-alone financial flexibility. The parent company, Valhi Inc., has the capacity to support the captive’s capital position and has access to external capital. Tall Pines’ risk management program includes regular visits to each plant location to assess risks. Loss control auditors generally visit the facilities twice a year, more frequently if needed (i.e., if construction is in progress, there is an increase in loss trends). The auditors find areas that need improvement and help the facilities implement methodologies and loss control practices. The facilities have a specified time-frame for implementation and must respond within the established guidelines.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Calif.-based North Sea Insurance Company. Best said the ratings “reflect North Sea’s solid risk-adjusted capitalization and improved operating and underwriting results in recent years, driven by various corrective actions, including enhanced systems to monitor, track and price risks. The ratings also take into account the recent acquisition of North Sea by Lancer Financial Group, Inc., which may lead to future synergies; however, North Sea’s operating personnel and near-term business plans remain essentially unchanged.” Best cited “North Sea’s historically high expense ratio, pockets of modest adverse loss reserve development and the challenges associated with being geographically concentrated in the New York metropolitan region, which exposes the company to a highly litigious environment and catastrophic events, both natural and man-made,” as offsetting factors. Best said “the positive outlook is supported by the company’s risk-adjusted capital position, improved profitability and A.M. Best’s expectation that these trends will continue over the near term.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A ‘(Excellent) from ‘A-‘ (Excellent) and issuer credit rating (ICR) to “aa” from “aa-” of New Hampshire-based MEMIC Indemnity Company. Best also affirmed the FSR of ‘A’ (Excellent) and ICRs of “aa” of MEMIC Group, which includes the consolidated results of Maine Employers Mutual Insurance Company (MEMIC) and its wholly owned subsidiary, MEMIC Indemnity. The outlook for all ratings is stable. “The rating upgrades reflect MEMIC Indemnity’s strong capitalization, improved operating results, strategic importance to the MEMIC Group as the growth vehicle by which it can expand its business model geographically, as well as the financial support provided in the form of capital contributions by MEMIC,” said Best. “The rating affirmations of MEMIC Group recognize its strong capitalization, favorable operating performance, solid market position and excellent reputation for its high level of service and profit sharing. The group’s positive attributes are derived from its demonstrated underwriting principles, prudent investment policy, aggressive claims management and firm commitment to loss control and in-depth safety education. Although MEMIC serves as the guaranteed market for workers compensation in Maine, its overall operating results continue to compare favorably with the workers compensation industry composite.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “aa-” of American Physicians Assurance Corporation, the primary member of American Physicians Group. American Physicians is the lead subsidiary of American Physicians Capital, Inc. (APCapital). Best also affirmed the ICR of “bbb” of APCapital. The outlook for these ratings is stable. In addition Best affirmed the FSRs of ‘B+’ (Good) and ‘B-‘ (Fair) and the ICRs of “bbb-” and “bb-” of APSpecialty Insurance Corporation) and Insurance Corporation of America (ICA), respectively. The outlook for the ratings of APSpecialty is stable, and the outlook for the ratings of ICA has been revised to stable from negative. All companies are domiciled in East Lansing, Mich. Best said the “ratings reflect the group’s conservative balance sheet, favorable operating performance since 2004 and its improved business position as a leading specialty provider of medical liability coverage within its five core states. The group also has maintained good risk-adjusted capital levels despite funding APCapital’s capital management initiatives via substantial dividend activity. Additionally, the ratings take into account APCapital’s guidance for 2009 and favorable earnings prospects over the near term.” In addition Best indicated that the “ratings further consider the financial flexibility afforded by APCapital, its ready access to the capital markets, strong interest coverage and modest financial leverage (total debt/total capital), which is 9.3 percent as of year-end 2008. The dividend stream from American Physicians has been utilized to repurchase stock, redeem $5 million of trust preferred debt and fund stock dividends.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of West Bend Mutual Group, whose principal member is Wisconsin-based West Bend Mutual Insurance Company. Best has also affirmed the FSR of ‘A’ (Excellent) and ICR of “a” of West Bend’s majority owned subsidiary, Michigan Insurance Company (MIC). The outlook for MIC’s ratings is stable. Best explained that it had taken the rating action due to West Bend’s “weakened operating results as well as its sizable investment losses during 2008, which have led to a drop in risk-adjusted capitalization and declining return measures. Furthermore, West Bend’s Midwest geographic concentration leaves it somewhat exposed to weather-related loss activity as well as significant competition from both regional and national insurers looking to expand away from U.S. coastal exposures.” In addition Best noted that the “outlook further considers the challenges West Bend faces to improve results given the current competitive market environment and the book’s susceptibility to weather losses. As a result, additional downward rating pressure may be applied should return measures not significantly improve in the medium term. Offsetting these negative concerns is West Bend’s strong level of capitalization, historically favorable operating results, plans to restore its profitability to stronger, more sustainable levels and its stable regional market presence.”

Topics AM Best Munich Re

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