Ratings Recap: National Guaranty, Standard Casualty, Affiliates RRG

November 24, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of National Guaranty Insurance Company of Vermont (NGIC), both with stable outlooks. The ratings reflect NGIC’s “excellent capital position, consistently profitable operating performance, experienced management team and its parent company, Waste Management (WM), Inc.’s operational controls,” Best explained. As offsetting factors Best noted that a “large percentage of the captive’s surplus is loaned back to WM and is supported by a 24-hour demand note from WM. However, capital levels at NGIC are monitored by Vermont, and the company must maintain a certain aggregate exposure to capital ratio as prescribed by the Vermont Department of Banking, Insurance, Securities and Health Care Administration.” In addition Best pointed out that as a “pure captive established to meet the financial assurance obligations of WM under Subtitle D of the Resource Conservation and Recovery Act, NGIC’s financial strength is closely tied to the financial position of WM. The coverages written apply to WM-owned landfills and assure that as of the date of closure there will be sufficient funds to pay for proper closure and post-closure activities, such as ‘capping’ and monitoring of the site. The reserves for these coverages are maintained on WM’s balance sheet. The parent’s ability to adhere to its strict operating guidelines, including reserve adequacy, ensures that the captive has minimal exposure to losses.”

A.M. Best Co. has placed under review with negative implications the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Texas-based Standard Casualty Company, a subsidiary of Palm Harbor Homes, Inc, a manufacturer and marketer of factory built homes. Best explained that the rating action “reflects the heightened uncertainty in Palm Harbor’s credit facility, debt obligations and liquidity requirements, which may result in a potential burden on Standard Casualty.” In addition best noted that in a recent public filing, “Palm Harbor announced it was in default on secured financing from Textron Financial Corporation. Palm Harbor also disclosed that in the event of an acceleration of the Textron facility and the notes, it is unlikely that it could borrow or raise the needed funds, and as a result, may be forced to seek protection under U.S. bankruptcy laws” However, best also pointed out that Palm Harbor is “actively engaged in discussions with third parties that have expressed interest in refinancing its debt, making an investment in or acquiring the company both pursuant to a bankruptcy court proceeding and outside the bankruptcy process. Currently, Palm Harbor’s efforts are primarily centered on obtaining debtor-in-possession financing and a sale of the company’s assets facilitated through the filing of a Chapter 11 petition under U.S. bankruptcy laws. The ratings of Standard Casualty will remain under review pending further discussions with management on strategic initiatives to rectify Palm Harbor’s credit and liquidity issues, which would eliminate the potential financial burden on Standard Casualty.”

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Vermont-based Affiliates Insurance Reciprocal, a Risk Retention Group (AIR) both with stable outlooks. “The ratings recognize AIR’s “strong balance sheet, excellent liquidity, conservative operating strategy, strong management and effective niche market strategy,” said Best. “AIR provides medical professional liability and a range of other liability insurance coverages to its affiliated nonprofit organizations located throughout the United States and the District of Columbia.” Best indicated that the Company’s capitalization level is “protected by solid reinsurance protection from an affiliated reinsurance company as well as leading global reinsurance companies. AIR’s FSR is supported by its conservative reserving and investment approaches. Reflecting AIR’s expertise, strong customer focus and commitment to its specific nonprofit sector, member retentions approached 100 percent because of the mandatory participation of all members of the parent company. Partially offsetting these positive rating factors are the Company’s limited size and scope of business, as well as the challenges associated with managing volatile and fluctuating results.”

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