Ratings: Benchmark, Repwest, Sooner, Park Assurance, Mariah Re, ACMAT, Kingsway Amigo

May 31, 2011

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” for Minnesota-based Benchmark Insurance Company. Best said the rating affirmation reflects Benchmark’s “adequate level of risk-adjusted capitalization (though weakening in recent years), historically solid underwriting results and consistent generation of pre-tax operating and net income. The ratings also reflect the favorable levels of liquidity Benchmark has maintained.” As offsetting factors, Best cited the “adverse development and strengthening of reserves for prior years’ loss and loss adjustment expenses, which have resulted in declining levels of underwriting and operating performance in recent years, even though that performance is in line with the average performance of Benchmark’s peer group. Soft market conditions that have challenged its efforts to establish a position in the specialty program underwriting market are also an offsetting factor to the ratings.” In addition Best noted that the negative outlook reflects its “concerns with the negative trends in underwriting performance and risk-adjusted capitalization in recent years. Despite the use of collateral, Benchmark’s increased dependence on small unauthorized quota share reinsurers has contributed to the decline in its risk-adjusted capital level.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Phoenix-based Repwest Insurance Company. Best said the actions reflect Repwest’s “strong level of risk-adjusted capitalization and favorable operating performance over the past five years, following management’s decision to focus solely on its U-Haul related business. Furthermore, Repwest’s publicly traded parent, AMERCO, does not rely on its insurance operations to meet its debt service and holding company obligations, which further benefits surplus generation.” As offsetting factors Best noted Repwest’s “historically poor underwriting performance driven by significant adverse loss reserve development associated with discontinued business, as well as the company’s high cost structure.” However, Best also indicated that despite these concerns, the outlook is based on its expectation that Repwest’s “solid operating performance will continue to offset any earnings drag generated by its discontinued operations and contribute to its surplus growth over the near term.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Vermont-based captive Sooner Insurance Company, both with stable outlooks. The ratings are based on Sooner’s “excellent capitalization, history of profitable operating results and the position it holds as the captive insurer for its ultimate parent, ConocoPhillips,” Best explained. The ratings also consider the “level of commitment on the part of ConocoPhillips, whose management incorporates Sooner as a core element in its overall risk management program.” As partial offsetting factors Best cited Sooner’s “exposure to large losses due to the high limits offered on its policies and the resulting significant dependence on reinsurance protection.” Best explained that the captive has “a history of strong underwriting results and operating returns. Sooner’s loss experience has remained favorable, due in part to ConocoPhillips’ strong loss control programs. ConocoPhillips’ corporate insurance conducts periodic reviews of its potential loss exposures through an external specialist in industrial risks. Based on this analysis, a single occurrence could result in a large loss that approaches Sooner’s treaty limits.” The analysis indicates, however, that despite this possibility, “Sooner has the capital to fund claims in the event of a reinsurance recovery problem, and it does participate in the U.S. federal program for terrorism coverage, the Terrorism Risk Insurance Program Reauthorization Act of 2007. Although the majority of Sooner’s capital is loaned to its parent, there is limited counterparty risk due to the affiliation. Additionally, ConocoPhillips has a strong balance sheet, a history of favorable earnings and is required to fund annually the loan from Sooner.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Vermont-based captive Park Assurance Company, both with stable outlooks. The ratings reflect Park’s “strong balance sheet, excellent liquidity and conservative operating strategy,” said Best. They also recognize “the company’s favorable operating results and its role as a single parent captive of JPMorgan Chase & Co., a leading global financial services group. As partial offsetting factors Best singled out “Park’s large gross underwriting exposures as it offers very high insurance limits and insures some properties with substantial insured values. Park is very dependent on reinsurance in order to offer its various property programs and high limits.” Best explained that the captive “provides JPMorgan Chase with global property coverages, including coverages against terrorism losses. It is therefore a key component of JPMorgan Chase’s risk management strategy and benefits from the group’s significant financial resources. Park also benefits from the group’s extensive risk mitigation and safety programs. As the company cedes most of its global property program, its exposure to underwriting losses is minimal, barring significant losses from terrorism. Park uses only highly rated reinsurers, and its surplus base is more than adequate to support its asset and credit risk exposures.” However, Best reiterated that “as the company offers very high limits, its resulting gross underwriting exposures on its largest properties also are very high. Park’s dependence on reinsurance is therefore substantial, creating considerable credit risk in the event of exceptionally large losses. In addition, the company is dependent on the protection afforded by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). While the TRIPRA program offers significant protection from terrorism losses, the net impact on Park could still be burdensome considering the high coverage limits offered.” Nevertheless, Best said it “recognizes the low probability of such extreme events and the support available to the company as part of JPMorgan Chase.”

Standard & Poor’s Ratings Services has commented on its ‘B (sf)’ rating on Mariah Re Ltd.’s Series 2010-1 notes. S&P explained “currently the losses these notes cover are within expectations. Since the closing date through the end of April, there have been three covered events in 2011 for which Property Claims Services (PCS) has currently published estimated losses: Catastrophe Series Numbers 38, 42, and 43. Total losses to Mariah Re Ltd. related to these three events are approximately $103.5 million.” S&P noted, however, that losses from the tornados that hit Missouri and potentially other states in the covered area on and around April 25 “are not included in this total as PCS has not yet reported loss estimates for this event. On a modeled basis, approximately 19 percent of the losses would be expected to occur from Jan. 1 through the end of April. Therefore, again on a modeled basis, using the attachment level of $825 million, it is expected that covered events totaling $157 million would have occurred. Although we are not taking any rating action today, we continue to monitor the events that might affect the notes. Once we receive the loss estimate related to the April 25 Missouri tornados, we will update the covered loss amount to Mariah Re Ltd. and take a rating action if warranted.
Mariah Re Ltd. Series 2010-1 closed on Nov. 15, 2010. The issue covers losses related to severe thunderstorm on an annual aggregate basis. The initial risk period began the day after closing and ends on Dec. 31, 2011, and the initial attachment level is $825 million. There were no covered events from Nov. 16, 2010 through the end of 2010.”

A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bbb+” of Connecticut-based ACMAT Corporation as well as the financial strength rating of A (Excellent) and the ICR of “a+” of ACMAT’s wholly owned subsidiary, Chicago-based ACSTAR Insurance Company. The outlook for all of the ratings is stable. The rating affirmations reflect ACSTAR’s “exceptionally strong risk-adjusted capitalization, historically strong operating performance, geographic diversification, effective risk management approach and experience in managing through market cycles.” As offsetting factors Best cited “ACSTAR’s limited product diversification, stockholder dividends to service the debt at ACMAT and the macroeconomic effects on ACSTAR’s premium revenue and cash flow.” Best also explained that “ACSTAR is a provider of surety bonds for general building, specialty trade, environmental remediation and asbestos abatement contractors, as well as for lead abatement contractors and solid waste disposal contractors. ACMAT owns and renovates commercial office buildings. It also provides financial and insurance services.”

A.M. Best Co. announced that it has withdrawn the financial strength rating of ‘C++’ (Marginal) and issuer credit rating of “b” of Miami-based Kingsway Amigo Insurance Company at the company’s request. The ratings were recently downgraded on April 29, 2011.

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