Ratings Recap: Blue Whale Re, Michigan Millers, Constitutional

March 10, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of Vermont-based captive Blue Whale Re Ltd., both with stable outlooks. The ratings reflect Blue Whale Re’s “strong capitalization and conservative operating strategy,” said Best. “The ratings also consider the company’s critical and central role and favorable profile as part of the Pfizer Group, as well as its excellent operating performance.” As partial offsetting factors Best cited the company’s “very large gross and net underwriting exposures to property losses and its dependence on reinsurance. Blue Whale Re is a single parent captive of Pfizer Inc., the largest pharmaceutical company in the world. As it (re)insures Pfizer’s global property exposures, Blue Whale Re plays an important position in the parent’s overall enterprise risk management and assumes a critical role in protecting the group’s assets,” Best explained. “Thus, it benefits from the group’s extensive risk management and loss control programs. The captive operates at conservative underwriting leverage levels; however, it provides coverages with extremely large limits, and its gross exposures per loss occurrence are therefore elevated. Though it benefits from reinsurance protection, its net retentions also remain very substantial. Reinsurance is provided by a large panel of reinsurers, and Blue Whale Re relies on significant capacity to be able to support its obligations. It is heavily dependent on reinsurance.” Best added that nonetheless it “recognizes the quality of the reinsurers and the substantial financial resources and support available to the captive as part of the Pfizer Group.”

A.M. Best Co. has downgraded the issuer credit rating to “bbb” from “bbb+” and affirmed the financial strength rating of ‘B++’ (Good) of Michigan Millers Mutual Insurance Company. Best has also revised outlook for the ICR to stable from negative, while the outlook for the FSR is stable. The rating actions reflect Michigan Millers’ “poor underwriting and operating returns posted since 2007, its vulnerability to weak economic and market conditions in its principal operating territory (Michigan) and the execution risk associated with management’s plans to return the company to a profitable footing,” Best explained. “Weak underwriting results followed soft market conditions, weather-related losses across its property exposed risks and an overall increase in loss severity across the majority of the company’s lines of business.” Best added that “despite these negative return measures, Michigan Millers improved upon its strong capitalization position during 2010 by significantly reducing its underwriting leverage as well as its aggregate property exposures. Furthermore, direct underwriting results (before ceded reinsurance) significantly improved in 2010. Management has implemented a number of important initiatives designed to improve net operating results. The company’s reorganized management team has demonstrated its commitment to returning Michigan Millers to underwriting profitability through tighter pricing and more selective underwriting strategies. In addition, Michigan Millers has restructured its reinsurance program to lower its expense structure without increasing the company’s overall risk profile. Other expense reduction and efficiency steps have been and continue to be taken in order to further reduce the strain caused by historically high fixed costs relative to a dramatically reduced premium level.” As a result, Best said it “expects the company to produce a small after-tax loss in 2011 followed by positive earnings in 2012. Despite the execution risk involved in restoring Michigan Millers’ profitability, the rating outlooks reflect Michigan Millers’ strong capitalization relative to its current ratings as well as A.M. Best’s expectation for improved earnings in the near term. Michigan Millers writes various property/casualty insurance products mainly across the Midwest, New York and (to a lesser degree) the Southwest. Michigan Millers’ operations are organized into two segments: general business and agribusiness, with general business including both commercial and personal lines.”

A.M. Best Co. has downgraded the financial strength rating to ‘F ‘(In Liquidation) from ‘D’ (Poor) and issuer credit rating to “rs” from “c” of Chicago-based Constitutional Casualty Company.Best noted that on January 21, 2011, “the Circuit Court of Cook County Illinois entered an Agreed Order of Liquidation with a finding of insolvency against Constitutional.”

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