Ratings Recap: First Hawaii, Cumberland, Seven Seas, Main Street

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of First of Hawaii Group and its members. The outlook for all of the ratings is stable. Best said the ratings “reflect the group’s strong risk-adjusted capitalization, excellent overall earnings profile and sound localized market presence as a leading insurance provider in Hawaii.” As offsetting factors Best cited the group’s “concentration risk as a single state insurer, its potential exposure to catastrophe losses, slightly elevated common stock leverage and the current weak economic conditions and highly competitive environment in its marketplace.” Best analysis also noted that the group’s strengths are “derived from its local brand name recognition, well-established agency relationships, local market expertise and diverse product portfolio. These strengths are partially offset by a geographically concentrated book of business, which exposes the group to regulatory and catastrophe risk. Management has taken an active role in monitoring its catastrophe exposure and mitigating this risk through disciplined underwriting and extensive reinsurance protection. As a result, the group’s net catastrophe exposure is at a manageable level.” Best also pointed out that “through its recent partnerships with Argo Group US, Inc. and AXIS Insurance Company to provide hurricane coverage to the majority of its existing personal lines insureds, the group’s gross hurricane exposure has been significantly lowered over the past several years. The group also benefits from the operational and financial support of its ultimate owners, CNA Financial Corporation and Tokio Marine & Nichido Fire Insurance Co., Ltd., with each owning 50 percent of the common stock of the group.” Best said that in the near term, it believes the “group’s underwriting profitability will likely be significantly lower as compared with the highly profitable results it achieved over the past several years, primarily due to the likelihood of less favorable prior year loss reserve development, as well as the continued pressure on current accident year results, which are attributable to soft market conditions. Nevertheless, in the near term, Best anticipates the group will achieve continued overall operating profitability largely due to net investment income.” Best summarized the companies and the ratings as follows: “The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for First of Hawaii Group and its following members: First Fire and Casualty Insurance of Hawaii, Inc.; First Indemnity Insurance of Hawaii, Inc. ; First Insurance Company of Hawaii, Ltd. ;First Security Insurance of Hawaii, Inc.”

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Cumberland Insurance Company, Inc. (CIC). Best has also affirmed the FSR of ‘A-‘ (Excellent) and ICRs of “a-” of Cumberland Insurance Group (CIG) and its member, The Cumberland Mutual Fire Insurance Company. The outlook for these ratings is stable. All companies are headquartered in Bridgeton, NJ. “CIG’s ratings and outlook are based on its strong risk-adjusted capitalization and long-standing market presence as a leading property writer in New Jersey,” Best explained. “CIG’s capital position is primarily derived from its modest underwriting leverage, which compares favorably to industry norms. In addition, CIG maintains a sound liquidity position that is enhanced by solid operating cash flows. CIG maintains its established market presence and long-standing relationships through its independent agency force. In an effort to improve underwriting results, CIG is in the process of implementing numerous strategic initiatives to update its technology and processes. These strategic initiatives include implementing rate adjustments, deleveraging unprofitable premium, enhancing pricing tools, implementing stricter underwriting guidelines and improving rate adequacy on coastal accounts. In addition, CIG has continued its strategy of reducing its geographic concentration through the expansion of its core products outside of New Jersey. A comprehensive reinsurance program reduces CIG’s net exposure to a catastrophe event to a manageable level.” As offsetting factors Best cited “CIG’s unfavorable five-year operating performance, which was driven by significant underwriting losses that occurred in 2010, 2009 and 2007, as well as its gradually declining net investment income. The underwriting deficits were primarily attributable to increased storm losses, greater fire loss activity and adverse loss reserve development on its homeowners’ and commercial multi-peril lines of business. Due to its property concentration in the Northeast, CIG is exposed to weather-related losses, as well as adverse judicial and regulatory actions. CIG’s ratings are based on the consolidation of Cumberland Mutual and its wholly owned but separately rated subsidiary, CIC.” In addition Best noted that CIC’s ratings are based on its solid risk-adjusted capitalization, recently improved earnings and local market knowledge. The revised outlook reflects CIC’s recently improved operating performance and risk-adjusted capitalization. In addition, the ratings recognize the financial and operational support and common management provided by its ultimate parent, Cumberland Mutual, a multi-line carrier writing business primarily in New Jersey. While CIC primarily writes workers’ compensation business in the highly competitive and regulated New Jersey market, its geographic expansion and introduction of new product offerings should serve to reduce its concentration of risk over the near term. In 2010, CIC’s operating earnings significantly increased, driven by favorable underwriting earnings, solid investment income and realized capital gains from the sale of a substantial portion of its common stock portfolio. The improved underwriting results were driven by improved workers’ compensation loss experience and favorable loss reserve development. As partial offsetting factors Best cited “CIC’s unfavorable five-year operating results, driven by solid but gradually declining net investment income, which is partially offset by substantial net underwriting losses. The underwriting losses were reflective of an above average underwriting expense ratio primarily due to relatively higher commission expenses from CIC’s independent agency platform, as well as the company’s investment in new products, technologies and the development of new territories. Furthermore, the company’s geographic concentration within New Jersey exposes it to competitive market conditions, as well as adverse judicial and regulatory actions.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Florida-based Seven Seas Insurance Company, Inc., both with stable outlooks. Best said the ratings reflect Seven Seas’ “outstanding profitability, supportive capitalization and management’s specialty underwriting expertise within the ocean and inland marine cargo market. Much of the company’s success can be attributed to its strong client relationships, effective loss control and risk management techniques. The ratings also acknowledge the synergies gained from Seven Seas’ effective low-cost distribution platform and preferential access to those it insures via the customer network of its affiliate, Tropical Shipping, one of the largest transporters of containerized cargo from the United States and Canada to the Caribbean region and the Bahamas.” In addition Best noted that Seven Seas is ultimately owned by Nicor Inc., whose primary business is Nicor Gas, one of the nation’s largest distributors of natural gas.”

A.M. Best Co. has upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of A (Excellent) of Florida-based Main Street America Group and its members. Best has also assigned an FSR of ‘A’ (Excellent) and an ICR of “a+” to Main Street America Protection Insurance Company, a new fully reinsured member of the group. The outlook assigned to all of the ratings is stable. Best explained that the “upgrading of the ICRs for the group reflects its trend of positive operating profitability as a result of enhanced pricing systems and underwriting discipline, which has strengthened its risk-adjusted capitalization. In addition, the group has reduced coastal exposures and increased its geographic spread of risk as part of its affiliation and acquisition of two Midwestern companies over the last two years. The rating actions contemplate a sustained positive underwriting and operating performance through the execution of management’s pricing and growth strategies in view of the challenging market conditions in the group’s leading lines of business. Best summarized the companies affected by the ratings as follows: The ICRs have been upgraded to “a+” from “a” and the FSR of A (Excellent) has been affirmed for Main Street America Group and its following members: Grain Dealers Mutual Insurance Company; Great Lakes Casualty Insurance Company; MSA Insurance Company; Main Street America Assurance Company; NGM Insurance Company and Old Dominion Insurance Company.

Topics New Jersey AM Best Hawaii