A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of New York Marine Group. The ratings also apply to the two members of the group, New York Marine and General Insurance Company and Gotham Insurance Company.
Best also affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Southwest Marine and General Insurance Company, located in Phoenix, which was formed in 2006 to write excess and surplus lines and surety business for the group. At the same time Best affirmed the ICR of “bbb” and the debt rating of “bbb” of the $100 million, 6.5 percent, senior unsecured bonds due March 2014 issued by the parent company, NYMAGIC, Inc. The outlook for all ratings is stable.
The ratings reflect NY Marine’s “solid capitalization, derived from historically conservative underwriting leverage, history of strong operating earnings, management’s efforts to decrease its catastrophe exposures, proven ability to quickly adapt to changing market conditions and a strong market niche in its core marine business line,” Best explained. “Although in recent years, the group’s other liability writings have surpassed that of its marine book.”
As offsetting factors, best cited NY Marine’s “dependence on reinsurance, the decreased (although somewhat improved) financial flexibility at NY MAGIC following its $32.5 million capital contribution to NY Marine in 2008 and the company’s limited capital growth over the years. This contribution followed significant losses in that year due to both realized and unrealized capital losses.
“As results improved in 2009 on profitable underwriting results and realized capital gains, the group paid a dividend to its parent holding company, which served to somewhat improve NY MAGIC’s stand-alone liquidity.”
Best also noted that the group’s “limited surplus growth has been hindered by dividend payments that have represented a significant portion of earnings for NY Marine. Furthermore, the group has a large portfolio of Alt-A mortgage-backed securities representing approximately 32 percent of year-end 2009 surplus. These securities have lost significant market value due to the turmoil within the housing and credit markets.”
Nonetheless, Best continued, NY Marine “holds a super senior position within these securities, significantly lowering the risk of default. As such, the majority of the risk presented by these securities is their illiquidity, although NY Marine plans on holding these securities to maturity. In addition, and although the group does have exposure to the Deepwater Horizon Gulf Coast oil spill, the majority of its loss is ceded to third party reinsurers and is not expected to materially impact 2010 results at this time.”
Source: A.M. Best
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