Ratings Roundup: Dryden Mutual, Western Ins., Ally Ins., FHM

September 21, 2011

A.M. Best Co. has upgraded the issuer credit rating to ‘a+’ from ‘a’ and affirmed the financial strength rating of ‘A’ (Excellent) of New York-based Dryden Mutual Insurance Company, both with stable outlooks. The rating actions reflect Dryden Mutual’s “very strong risk-adjusted capitalization, sustained operating profitability throughout various market cycles, conservative leverage measures and favorable balance sheet liquidity,” Best explained. The positive rating factors are “supported by Dryden Mutual’s local underwriting focus and long-standing market presence. Despite current soft market conditions and elevated commission expense ratios, the company’s underwriting results have remained profitable since 2002.” Best said the stable outlook reflects its view that “capitalization will remain more than supportive of the current ratings, growing through strong earnings.” As partial offsetting factors Best cited Dryden Mutual’s “elevated expense structure and its narrow geographic spread of risk. Dryden Mutual’s geographic concentration within New York State does leave it susceptible to local weather patterns and negative judicial, legislative or regulatory changes.” However, Best pointed out that “despite heightened storm activity throughout the Northeast, the company experienced very low levels of weather losses during 2010. Dryden Mutual is an advance premium co-operative insurer that specializes in writing commercial multi-peril, commercial fire, homeowners and general liability insurance throughout upstate New York.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘E’ (Under Regulatory Supervision) from ‘B’ (Fair) and the issuer credit rating (ICR) to ‘rs’ from ‘bb’ of Western Insurance Company (WIC). Best has also downgraded the FSR to ‘C’ (Weak) from ‘B’ (Fair) and the ICR to ‘ccc’ from ‘bb’ of WIC’s affiliate, Western Bonding Company (WBC), and has placed its ratings under review with negative implications. Both companies are domiciled in Salt Lake City, Utah. The rating actions on WIC follow Best’s “recent confirmation of a Rehabilitation Order issued by the State of Utah against the company on August 25, 2011,” said the report. The rating actions, including the under review status, on WBC “reflects the company’s limited profile, including geographic and product concentration, limited sources of distribution and execution risk in developing and implementing a business plan to profitably grow the company.” Best also pointed out that the “rehabilitation order at WIC may indirectly impact WBC as the loss of WIC’s financial assets and income could place a strain on the capitalization and liquidity of the parent holding company, A and H Insurance, Inc., which could in turn place pressure on WBC.” Best said the under review status reflects the need for it to review WBC’s business and operational plans going forward. Best expects to resolve this issue within 90 days.

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit ratings of ‘bbb’ of Ally Insurance Group, formerly GMAC Insurance Group, and its members, which are led by Motors Insurance Corporation (MIC). The outlook for all of the ratings is stable. All companies are domiciled in Southfield, Michigan. The rating affirmations for Ally Insurance reflect its “excellent risk-adjusted capitalization, consistently solid operating results and well-established market presence as a specialized underwriter of motor vehicle mechanical repair protection extended service contracts,” Best explained. Currently, the insurance group focuses exclusively on commercial lines. It consists of MIC and two other entities, MIC Property and Casualty Insurance Corporation and CIM Insurance Corporation, following the sale of Ally Insurance’s personal lines businesses in 2009 and 2010. Best added that the group has “consistently generated capital through operating earnings from its long-term contract business, an efficient expense structure and steady stream of investment income.” As offsetting factors Best cited the “continued operating and financial challenges of its parent, Ally Financial Inc. Ally Financial Inc. is one of the world’s largest automotive financial services companies and a preferred provider of vehicle financing for General Motors, Chrysler, SAAB, FIAT and Maserati dealers and customers. However, given its large legacy mortgage business, Ally Financial Inc. remains exposed to potential losses and litigation related to subprime and alternative mortgages issued prior to 2009. In a more recent development, the conservator for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation filed lawsuits against 17 financial institutions for faulty mortgage bonds, one of those institutions being Ally Financial Inc.”

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-‘ of Jacksonville, Florida-based FHM Insurance Company. Best explained that the rating actions reflect the “significant deterioration in FHM’s underwriting performance in recent years, with reported underwriting losses well in excess of management’s projections previously shared with A.M. Best and the expectation for continued weak results over the near term.” Best said the deterioration in 2010 was “largely related to underperforming out-of-state business associated with its expansion efforts, while underwriting losses in 2011 were driven, in part, by reserve strengthening actions for accident years 2007 through 2010 and continued weak pricing levels. The affirmation of the ratings reflects FHM’s strong capitalization, relatively solid operating results in earlier years and established presence within its market segment. The positive attributes recognize the company’s focused underwriting and aggressive claims management, which historically produced relatively solid underwriting results, despite a significant reduction in workers’ compensation rates within Florida since legislative reforms were passed in 2003.”

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