Ratings Recap: Valiant, General Automobile Permanent General

November 12, 2010

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Valiant Insurance Company and Valiant Specialty Insurance Company, both domiciled in Wilmington, Del. Best also noted that the “ratings remain under review, and the implications have been revised to positive from developing. The rating affirmations reflect the recent change in ownership of Valiant Insurance and Valiant Specialty through the purchase of 100 percent of the capital stock of Valiant Insurance Group, Inc. by First Mercury Insurance Company (FMIC), a subsidiary of First Mercury Financial Corporation (FMFC). Best also indicated that the ratings “recognize the implementation of 100 percent quota share reinsurance agreements between FMIC and Valiant Insurance and FMIC and Valiant Specialty, resulting in the assignment of a Financial Size Category of IX to both companies.” Valiant Insurance and Valiant Specialty’s ratings ” remain under review now with positive implications, reflecting the current under review with positive implications status of FMIC following the recent announcement that FMFC and Fairfax Financial Holdings Ltd. have entered into a merger agreement, whereby Fairfax will acquire all of the outstanding shares of FMFC’s common stock.” Best said it “plans to resolve the under review status upon the completion of the transaction, which is expected in the first quarter of 2011, subject to shareholder and regulatory approval.”

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘A-‘ (Excellent) and an issuer credit rating (ICR) of “a-” to The General Automobile Insurance Company (GAIC), a wholly owned subsidiary of Permanent General Assurance Corporation of Ohio (PGACOH). The outlook assigned to these ratings is stable. Best also affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of the Permanent General Insurance Group. The ratings apply to Permanent General Assurance Corporation (PGAC) and its affiliate, PGACOH, which operate through an inter-company pooling arrangement. All companies are domiciled in Valley View, Ohio. The outlook on these ratings remains stable. Best said the ratings for GAIC are reflective of its supportive capitalization and the benefits that it derives from participating in an intercompany pooling agreement with PGAC and PGACOH. GAIC will function as the Group’s vehicle for growth through direct distribution by internet and telephone sales. Aggressive premium growth is projected, and future earnings potential may be adversely impacted if growth is achieved through inadequate pricing during the current soft market. These concerns are partially mitigated by the Group’s expertise in the non-standard auto lines and management’s efforts to improve earnings. The ratings for the Group are based on its strong capitalization and sound balance sheet liquidity, better than average earnings, diverse distribution network and strong internal management team. These positive ratings factors are partially offset by the Group’s limited business profile in the non-standard automobile market, above average underwriting leverage and aggressive growth during soft market conditions. In addition, the Group is a source of dividend income to the upstream holding company to service its debt and pay dividends to its shareholders. Capitalization may be adversely impacted if premium and loss reserve growth are not supported by a proportional increase in surplus.

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