Ratings Roundup: First Jersey, Stonetrust

June 7, 2011

A.M. Best Co. has downgraded the financial strength rating to ‘B-‘ (Fair) from ‘B+’ (Good) and the issuer credit rating to “bb-” from “bbb-” of First Jersey Casualty Insurance Company, Inc. (FJCIC), and has assigned a negative outlook to both ratings. The rating actions “follow the negative outlook that was initially placed on the company’s ratings last year and reflect FJCIC’s continued underwriting and operating losses in 2010, the constant volatility around these results and the uncertainty related to future loss reserve development,” Best explained. “FJCIC’s poor performance has been primarily driven by adverse loss reserve development on prior year claims, which caused the company’s surplus to contract by nearly 30 percent in 2010. The ratings also recognize FJCIC’s limited business profile and the uncertainty surrounding its future business endeavors as it decided to stop writing new direct business in late 2010.” Best said that partially offsetting these concerns are “FJCIC’s conservative underwriting leverage ratios via the implementation of substantial quota share reinsurance agreements with highly rated third-party reinsurers beginning in 2008. Management also has shown explicit support for the company via equity infusions in 2009 and in early 2011 to meet New Jersey’s minimum capital requirement.”

A.M. Best Co. has downgraded the financial strength rating to ‘B-‘ (Fair) from ‘B+’ (Good) and the issuer credit rating to “bb-” from “bbb-” of First Jersey Casualty Insurance Company, Inc. (FJCIC), and has assigned a negative outlook to both ratings. The rating actions “follow the negative outlook that was initially placed on the company’s ratings last year and reflect FJCIC’s continued underwriting and operating losses in 2010, the constant volatility around these results and the uncertainty related to future loss reserve development,” Best explained. “FJCIC’s poor performance has been primarily driven by adverse loss reserve development on prior year claims, which caused the company’s surplus to contract by nearly 30 percent in 2010. The ratings also recognize FJCIC’s limited business profile and the uncertainty surrounding its future business endeavors as it decided to stop writing new direct business in late 2010.” Best said that partially offsetting these concerns are “FJCIC’s conservative underwriting leverage ratios via the implementation of substantial quota share reinsurance agreements with highly rated third-party reinsurers beginning in 2008. Management also has shown explicit support for the company via equity infusions in 2009 and in early 2011 to meet New Jersey’s minimum capital requirement.”

A.M. Best Co. has upgraded the financial strength rating to ‘B++’ (Good) from ‘B+’ (Good) and issuer credit rating to “bbb” from “bbb-” of Louisiana-based Stonetrust Commercial Insurance Company, and has revised its outlook on the ratings to stable from positive. Best explained that the upgrades “reflect Stonetrust’s solid capitalization, profitable earnings achieved through strong underwriting performance and consistent investment income, and management’s underwriting experience within its niche workers’ compensation marketplace.” As partial offsetting factors, Best cited “the areas of adverse reserve development in Stonetrust’s prior accident years, its concentrated market profile operating as a monoline insurer writing predominantly in a single state and the execution risk associated with premium growth in contiguous states while maintaining pricing adequacy.” However, Best indicated that in spite of these concerns, “the company’s rating outlook is reflective of improved capitalization and A.M. Best’s expectation that solid operating performance will be sustained over the near term and will contribute to organic surplus growth.”

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