Ratings: Doctors Co., Gateway, Kingstone, Farm Credit, Associated Mutual

A.M. Best Co. has commented that the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Doctors Company Insurance Group (TDC) and its members, led by The Doctors Company, an Interinsurance Exchange, based in Napa, Calif., are unchanged following the recent announcement that Florida-based FPIC Insurance Group Inc. (FPIC) has entered into a definitive agreement to be acquired by The Doctors Company, an Interinsurance Exchange. FPIC’s primary insurance company is First Professionals Insurance Company. Best noted that the “outlook for TDC’s ratings is positive. When the acquisition is completed, shareholders will be entitled to receive cash totaling $362 million. With the acquisition of FPIC, TDC is purchasing a regional provider of medical professional liability insurance products with clients in 14 states, concentrated in Florida. The transaction assists TDC in achieving scale through continued geographic diversification and supports the group’s growth philosophy. The transaction is not subject to financing contingencies and is expected to close by the fourth quarter of 2011, subject to regulatory approval and a vote by FPIC’s shareholders to approve the sale.” Best affirmed the current ratings of TDC in June 2010.

A.M. Best Co. has revised the outlook to negative from positive and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of St. Louis-based Gateway Insurance Company. The ratings reflect Gateway’s “adequate risk-adjusted capitalization, favorable historical operating results on its core book of commercial auto (taxi cab/limousine) lines prior to 2009, and the financial flexibility provided by its ultimate parent, Diane M. Hendricks Enterprises, Inc., which has demonstrated explicit financial and operational support for the company,” Best explained. However, the rating agency said that “continued concerns surrounding the company’s Florida book of commercial auto lines business, which deteriorated dramatically in 2009 and 2010, in large measure reflecting the systemic problems of fraud affecting other automobile underwriters in the state,” are serious offsetting factors. Best also added that there are “uncertainties with Gateway’s planned growth into new territories and lines of business, including its rapidly growing contractors program that specializes in workers’ compensation, general liability and commercial auto insurance for roofing contractors, and trucking program focusing on liability and physical damage coverages for small, owner-operator, long-haul trucking operations. The revision in outlook reflects the aforementioned concerns and uncertainties, as well as the company’s continued above-average growth in highly competitive property/casualty markets.”

A.M. Best Co. has upgraded the financial strength rating to ‘B+’ (Good) from ‘B’ (Fair) and the issuer credit rating (ICR) to “bbb-” from “bb+” of New York-based Kingstone Insurance Company, and has also upgraded the ICR to “bb-” from “b+” of Kingstone Companies, Inc., the publicly traded holding company for Kingstone. The outlook for all of the ratings is stable. The ratings and outlook reflect Kingstone’s “adequate capitalization, favorable operating performance, low investment leverage ratios and local market knowledge in the state of New York,” said Best. “The company’s favorable operating performance is reflected in its five-year average double-digit pre-tax returns on revenue and surplus, generated by positive net underwriting income and favorable investment income. Surplus growth has been consistently solid over the last five years, increasing at a double-digit average annual rate.” Best explained that its upgrade of the ICR for Kingstone Companies, Inc. reflects the “reduction in the holding company’s debt leverage ratios in 2010, as shares of preferred stock were converted to common stock.” As partial offsetting factors best cited Kingstone’s “unfavorable calendar year loss reserve development deriving primarily from lead paint claims originating from earlier accident years, its elevated net underwriting and ceded leverage ratios and its single-state concentration of risk, which exposes it to weather-related events as well as to market, regulatory and judicial issues.” In addition Best noted that “reserve development for the more recent accident years has been favorable, and older lead paint claims are now adequately reserved. Despite Kingstone’s surplus growth, its net underwriting leverage ratio increased in 2010, stemming from the company’s cancellation of its commercial automobile quota share reinsurance. This resulted in a modestly lower, but still elevated, ceded leverage ratio. Both of these measures exceed the commercial automobile composite averages, although the ceded leverage ratio has been reduced in each of the last five years. While the company’s single-state concentration exposes it to weather-related events, catastrophe exposure is partially mitigated through catastrophe reinsurance, for which the company has purchased increased limits in recent years, the use of hurricane deductibles, visual risk inspections and distance-from-shore restrictions.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of The Farm Credit System Association Captive Insurance Company (FCSAC) (Greenwood Village, Colo.), both with stable outlooks. The ratings reflect FCSAC’s “excellent capitalization, profitable operating results, strong liquidity measures and conservative operating strategy,” said Best. FCSAC is an association captive dedicated to serving the Farm Credit System community. Best explained that the company’s “strong return measures are due to profitable underwriting results and generally consistent levels of investment income.” As partial offsetting factors Best cite FCSAC’s “concentrated business risks as an insurer to a homogeneous population and its exposure to weather-related events.” However, Best also indicated that “to date FCSAC has not suffered significant weather-related losses. FCSAC has a favorable market niche as all Farm Credit members receive their insurance through the captive. The subscribers to the captive are the Farm Credit banks and associations, which are part of the Farm Credit System established by Congress in 1916 to provide American agriculture with a dependable and dedicated source of credit. Subscribers also include The Farm Credit Council and these related service organizations: Federal Farm Credit Banks Funding Corporation, Farm Credit Leasing and Financial Partners.” Best also noted that, “although FCSAC has no excess of loss reinsurance protection, members are required to carry excess coverage. This coverage is placed through the FCSAC’s attorney-in-fact, ensuring that members have purchased appropriate reinsurance protection. Furthermore, FCSAC has an aggregate excess of loss policy, which limits its losses on a calendar year basis. FCSAC has introduced a number of new products over the past 10 years that could potentially alter its loss experience going forward.” Best added that it “anticipates continued strong net income performance from FCSAC but remains concerned that a confluence of factors could lead to a decline in its performance and profitability.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Michigan-based Associated Mutual, as a result, Best explained, of a “five-year decreasing trend in risk-based capital. Over the past two years, Associated Mutual increased nonadmitted assets to $2.7 million.” Best explained that the “change in nonadmitted assets directly reduced the company’s capital and surplus. In 2010, the company reported favorable net income, returning to profitability after two years of losses, while continuing a five-year trend of positive revenue development. However, the increase in risk premiums and increase in nonadmitted assets more than negated the positive impact of full-year earnings on capital and surplus. Subsequently, Associated Mutual issued another surplus note in order to preserve operating capacity and to enhance balance sheet strength. The note was purchased by the plan’s controlling affiliate, Michigan State AFL-CIO Public Employees Health and Welfare Trust Fund (PET). Consequently, the amount of surplus notes to capital and surplus increased in 2010 to more than 50 percent from 12 percent in 2007.” Best added that it does acknowledge “the efforts made by Associated Mutual to reduce its risk exposure to commercial medical insurance to focus on growing a number of ancillary lines of business, including prescription drugs, dental, vision, life and disability insurance.”

Topics Florida AM Best