Ratings Recap: Omega US, Real State, USPlate, Safety

March 31, 2011

A.M. Best Co. has placed under review with negative implications the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Illinois-based Omega US Insurance, Inc., a subsidiary of Bermuda-based Omega Insurance Holdings Limited and an affiliate of Omega Specialty Insurance Company Limited (OSIL), which provides explicit support to Omega US through a whole account quota share agreement, net of third-party reinsurance. The rating actions on Omega US are concurrent with the rating actions taken on OSIL and Omega, both of whose ratings also have been placed under review with negative implications following weaker than expected earnings in 2010, uncertainty in respect to the group’s exposure to catastrophe events in 2011, the ongoing placement of the 2011 reinsurance program and concerns related to the group’s overall risk management practices. Additional uncertainty is introduced by a review by the group’s directors of approaches that may lead to an offer to acquire Omega. Best said it expects “to resolve the under review status following a more extensive analysis of catastrophe losses in the first quarter of 2011 and the impact of recent management actions on the group’s prospective risk-adjusted capitalization and risk management standards, in particular those relating to exposure management.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B++’ (Good) and issuer credit rating (ICR) of “bbb+” of Honolulu-based Real State Insurance LLC . Best concurrently withdrew the ratings and assigned an NR-4 (Company Request) to the FSR and an “nr” to the ICR. The ratings reflect Real State’s “good capitalization level and favorable operating experience as well as its role as the captive insurance company for EOP Operating Limited Partnership (EOPOLP),” Best explained. As offsetting factors Best cited Real State’s “compromised risk-adjusted capital strength in the event of a full limit earthquake as measured by Best’s Capital Adequacy Ratio (BCAR) and the fact that the company’s only source of business is the office property portfolio of EOPOLP. Furthermore, earthquake and wind exposure presents the potential for a single catastrophic loss for Real State that could effectively exhaust more than 46 percent of its surplus.” Best also noted that, “while the BCAR was higher prior to the leveraged buyout of Equity Office Partnership Trust by The Blackstone Group, risk-adjusted capital strength decreased due to a change in A.M. Best’s treatment of the parental indemnity agreement. Starting in 2006, the parental indemnity agreement was not recognized for its GAAP by Real State’s auditors, and it no longer receives BCAR credit from A.M. Best. It should be noted that management has indicated that the State of Hawaii still recognizes the parental indemnity agreement as valid. Also of note is the changed exposure base of Real State as properties are sold out of the portfolio and others enter the portfolio from property acquisitions.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of USPlate Glass Insurance Company. Best explained that the rating actions “reflect USPlate’s excellent profitability, supportive capitalization and management’s specialty underwriting expertise within the plate glass market. The ratings also reflect the company’s elevated retained earnings and the continued benefits afforded by management’s highly specialized, niche focus in the plate glass market. These rating factors are furthered by USPlate’s purchase of increased reinsurance coverage limits since Hurricane Wilma. This purchase was done in part to accommodate the rise in insured values, to answer demand by the company’s policyholders for higher limits and USPlate’s continued practice to limit its potential net catastrophe loss exposure to a 1 in 250-year catastrophe event.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a” of The Safety Group and its inter-company pool members, Safety Insurance Company, Safety Indemnity Insurance Company and Safety Property and Casualty Insurance Company. Best has also affirmed the ICR of “bbb” of Safety’s publicly traded holding company, Delaware-based Safety Insurance Group, Inc. The outlook for all of the ratings is stable. All of the companies are domiciled in Boston, Mass., except where specified. The ratings of Safety reflect its “solid capitalization, trend of strong operating income and its market position as a leading personal automobile writer in Massachusetts,” said Best. The ratings also “acknowledge the group’s favorable loss reserve development and low investment leverage.” As partial offsetting factors Best noted Safety’s “concentration of business in Massachusetts that is primarily in the private passenger automobile line. The group’s recently increased homeowners’ writings provide some product diversification; however, this does create greater property catastrophe risk.”

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