Ratings: Commerce Protective, Stonington/Lantana, Farmers Mutual, One Beacon Lloyd’s, Texas Medical

September 8, 2011

A.M. Best Co. has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and issuer credit rating to ‘bbb-‘ from ‘bbb’ of Pennsylvania-based Commerce Protective Insurance Company (CPIC), and has placed both ratings under review with negative implications. The rating downgrades follow a review of CPIC’s second quarter 2011 operating results wherein “significant underwriting losses were reported primarily attributable to increased claim frequency on its physical damage trucking business and net investment income, which continues to decline,” Best explained. This deterioration in operating performance comes “after the below average operating performance by the company in recent years. In the first six months of 2011, CPIC reported a net loss of $501,911 (most of which occurred in the second quarter), which resulted in a 21.8 percent decline in the company’s statutory capital and surplus to $1.805 million at June 30, 2011. While this capital and surplus level is above that required for Pennsylvania, CPIC’s surplus is below the requirements for the three other states it does business in, namely, Mississippi, Nevada and West Virginia.” However, Best also noted that in addition to CPIC implementing corrective actions, “the company’s parent, Londonderry Group, Ltd., has successfully raised $750,000 of equity capital from existing shareholders, which it intends to contribute to CPIC upon regulatory approval.” Best added that while it expects “this planned capital contribution to CPIC will result in adequate risk-adjusted capitalization for the company, the under review status reflects that this transaction has not yet been completed, as well as CPIC’s currently unfavorable underwriting and overall operating performance trend.” Best said it “plans to resolve the under review status upon the completion of the capital contribution, which management anticipates within 30 days.”

A.M. Best Co. has upgraded the issuer credit ratings (ICR) to ‘a+’ from ‘a’ and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) of Texas-based Stonington Insurance Company and Bermuda’s Lantana Insurance Ltd., and has removed the ratings from under review with negative implications and assigned a stable outlook. Best has also downgraded the FSR to ‘B++’ (Good) from ‘A ‘(Excellent) and the ICR to ‘bbb+’ from ‘a’ of Stonington Lloyds Insurance Company, and has removed both ratings from under review with negative implications and assigned a stable outlook. Best then said it had concurrently “withdrawn both ratings at the company’s request given its run-off status. All three companies were part of QBE Insurance Group Limited’s (QBE) acquisition of the U.S. insurance business of Renaissance Reinsurance Ltd. in a deal that closed in March 2011.” The ratings of Stonington and Lantana largely reflect the “full rating enhancement afforded both companies given their recent acquisition by QBE and the explicit support provided by an affiliate, General Casualty Company of Wisconsin (GCW), in the form of substantial quota share reinsurance, effective September 1, 2011,” Best explained. “Stonington and Lantana are now members of QBE Regional Insurance Group, of which GCW is the lead insurer, and both are key parts of QBE’s continued expansion in the United States. QBE Regional Insurance Group has an FSR of ‘A’ (Excellent) and an ICR of ‘a+’, with a current Financial Size Category of X.” Best also indicated that the rating actions “consider the strategic role and importance of Stonington and Lantana to the overall specialty operations of QBE Americas Group, as well as each company’s independent attributes, which include risk-adjusted capitalization, operating performance and business profile. All other QBE ratings, including GCW, are unchanged. The rating actions on Stonington Lloyds take into account the continued run-off of its business, along with its diminishing business profile and minimal importance to the on-going operation of QBE Americas Group.”

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit rating to ‘bbb’ from ‘a-‘ of Oklahoma-based Farmers Mutual Fire Insurance Company. The outlook for both of the ratings is negative The downgrades “reflect the deterioration in Farmers’ underwriting results, coupled with losses to the company’s surplus in recent years due to its geographic concentration of risks in Oklahoma,” Best explained. In addition, “an unexpected rise in the company’s probable maximum loss from a 100-year tornado/hail event is significantly elevated and represents a notable decline in Farmers’ risk-adjusted capitalization.” As more positive factors Best cited Farmers’ “relatively low underwriting leverage, steady stream of investment income, excellent liquidity and long-standing local market presence in Oklahoma.”

A.M. Best Co. has withdrawn the financial strength rating of ‘A’ (Excellent) and issuer credit rating of ‘a’ of OneBeacon Lloyd’s of Texas due to the dissolution of the company effective June 30, 2011. All assets and liabilities of the company were transferred into its immediate parent, OneBeacon American Insurance Company, based in Canton, Mass.

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of ‘a’ to Texas Medical Liability Trust (TMLT), and it has also assigned a FSR of ‘A’ (Excellent) and an ICR of ‘a’ to TMLT’s wholly-owned subsidiary, Texas Medical Insurance Company (TMIC). The outlook assigned to all of the ratings is stable. All companies are domiciled in Austin, Texas. The ratings of TMLT reflect its “excellent risk-adjusted capital position, favorable operating performance, experienced management team and its leading market position in Texas,” said Best. TMLT also benefits from its “strong relationship with the Texas Medical Association (TMA), which has exclusively endorsed TMLT since 1992. This endorsement, TMLT’s heavy involvement in physician advocacy issues and its service orientated approach, has allowed TMLT to maintain strong policyholder retention levels despite competitive market conditions.” Best explained that the “competitive market in Texas follows the passage of tort reform in 2003, which among other provisions led to a non-economic damage cap of $250,000. TMLT’s operating results are partially reflective of the claim frequency benefits of this reform as well as management’s conservative approach to reserving, underwriting discipline and investing.” As a partial offsetting factor Best cited the “inherent market risks associated with being a predominantly single state, monoline medical professional line insurer. Best added that TMIC’s ratings are based on its “group rating methodology and take into consideration TMIC’s role and strategic importance to TMLT. TMIC is currently admitted in Texas and Oklahoma. TMIC was formed in 1995 to provide professional liability coverage to the ancillary medical staff of TMLT policyholders as TMLT’s charter prevents it from insuring non-TMA medical personnel. The ratings further reflect the explicit support provided by TMLT (in the form of capital contributions) and the implied commitment in the future to support TMIC as needed in acquiring and retaining business in conjunction with and for TMLT.”

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