Ratings Recap: Berkley National, Allstate (NJ), Preferred Physicians

January 24, 2011

A.M. Best Co. has commented that the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Iowa-based Berkley National Insurance Company are unchanged following internal modifications effected by W. R. Berkley Corporation with respect to reinsurance and ownership. The outlook for the ratings is stable. Best explained that as of July 27, 2010, direct ownership of Berkley National was transferred from Berkley Regional Insurance Company (BRIC) of Wilmington, Del., to Berkley Insurance Company (BIC), which is also located in Wilmington. In addition, W. R. Berkley implemented a change in reinsurance whereby BIC currently supports Berkley National through quota share reinsurance, replacing BRIC. Best explained that “under the terms of the quota share, BIC reinsures 90 percent of Berkley National’s premiums and losses effective August 1, 2010. The limitation in the reinsurance cession to 90 percent is due to regulatory restrictions. While this agreement does not sufficiently meet the criteria for a reinsured rating, Berkley National is afforded group rating status and is now a member of Berkley Insurance Group, which has resulted in the assignment of a Financial Size Category of XV to the company.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Allstate New Jersey Insurance Group and its members. The outlook for all ratings is stable. Allstate New Jersey’s ultimate parent is The Allstate Corporation. The rating affirmations are based on Allstate New Jersey’s “solid risk-adjusted capitalization and generally favorable operating performance. Allstate New Jersey’s management has undertaken various actions to enhance its overall profitability since it became the dedicated New Jersey property and casualty carrier for Allstate,” said Best. “The impact of these initiatives has been evident in Allstate New Jersey’s historically favorable operating results for most of the past five-year period. Allstate New Jersey’s operating performance also has been positively impacted by management’s local market knowledge and ability to quickly react to changing market conditions.” Best also noted that “private passenger automobile margins have shown improvement due to recent rate activity, new business acceptance criteria and renewal book actions. Allstate New Jersey also has taken steps to improve its homeowners’ profitability, including rate increases, targeted customer/property inspections and a reduction in mono-line homeowners’ exposure. The ratings also acknowledge the operational and financial benefits obtained as affiliates of the members of Allstate Insurance Group (Northbrook, IL), which is a market leader in the U.S. insurance industry.” As offsetting factors Best cited the company’s “geographic concentration within one state, which exposes its capitalization and earnings to weather-related losses, competitive pressures and regulatory mandates. This exposure was evident in 2010 as its homeowners’ line of business was adversely impacted by net catastrophe losses totaling approximately $40 million, with an overall combined ratio impact of approximately six points. Best summarized the ratings affected as follows: The FSR of ‘A-‘ (Excellent) and ICRs of “a-” have been affirmed for Allstate New Jersey Insurance Group and its following members: Allstate New Jersey Insurance Company; Allstate New Jersey Property and Casualty Insurance Company; Encompass Insurance Company of New Jersey; Encompass Property and Casualty Insurance Company of New Jersey

A.M. Best Co. has upgraded the financial strength rating to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating to “a-” from “bbb+” of Kansas City-based Preferred Physicians Medical Risk Retention Group, and has revised the outlook on both of the ratings to stable from positive. The ratings are reflective of Preferred Physicians’ “excellent risk-adjusted capitalization and sound operating performance,” Best explained. “The improvement in capitalization is due in large part to the recognition of redundancy in loss reserves, which have ultimately flowed into earnings. Recent underwriting gains have been driven by the company’s focused underwriting strategy, extensive risk management program, geographic diversification, significant reduction in claims frequency since 2004 and consistent pattern of establishing solid loss reserves. Further acknowledged in the ratings is the financial flexibility afforded by Preferred Physicians’ parent, PPM Services, Inc., which may contribute funds to the company. This financial flexibility is somewhat tempered by the parent’s share repayment obligations to insureds no longer covered. However, management has initiated a capital management plan to address this issue.” As partial offsetting factors, Best cited Preferred Physicians’ “narrow spread of risk as it operates exclusively in the anesthesiology segment of the medical professional liability market, characterized by its low frequency and high severity of claims. The company also faces the inherent challenges given its concentration as they relate to price competition, legislative (tort) reform, loss cost trends and regulatory challenges, as well as its somewhat elevated use of reinsurance. The outlook contemplates the sustainability of excellent risk-adjusted capitalization through the adherence to adequate pricing and reserving discipline, controlled growth and the successful execution of the capital management goals.”

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