Ratings: RetailFirst, ANICO, Mariah Re, German Mutual, Centurion, Mt. Morris

October 12, 2011

A.M. Best Co. has assigned a financial strength rating of ‘B++’ (Good) and issuer credit ratings of “bbb+” to RetailFirst Insurance Company and BusinessFirst Insurance Company, collectively referred to as RetailFirst Insurance Group, and has assigned a stable outlook to all of the ratings. All of the companies are domiciled in Lakeland, Florida. The ratings reflect RetailFirst’s “strong capitalization, solid operating profitability measures and management’s disciplined operating philosophy,” said Best. The ratings further acknowledge the group’s “relatively strong underwriting performance in earlier years despite challenging market conditions, a significant reduction in workers’ compensation rates in Florida since legislative reforms were passed in 2003 and the weak macroeconomic environment. In addition, the ratings recognize RetailFirst’s historically prudent loss reserving standards, which has resulted in favorable loss reserve development on prior accident years and management’s strategic business plans and projections that call for near-term earnings and capital accumulation.” As partial offsetting factors, Best cited “the challenging market conditions in the workers’ compensation line of business and the group’s concentrated business profile, operating as a monoline insurer with limited geographic spread, which exposes the group to additional competitive pressures and regulatory issues, such as state reforms and mandated rate reductions. An additional offsetting rating factor is the significant deterioration of RetailFirst’s underwriting performance in 2010 and the first half of 2011 relative to earlier years.” Best also said it recognizes that, “while there are risks associated with RetailFirst’s strategy of solely relying on a third party for critical business processes, this concern is mitigated by the group’s long-standing relationship with Summit Consulting, Inc., which has been the third party administrator since RetailFirst Insurance Company was formed as a fund in 1979.”

Standard & Poor’s Ratings Services said today that it lowered the rating on the core group operating companies of American National Insurance Co. (ANICO) to ‘A’ from ‘A+’. It has also lowered the ratings by one notch on certain operating companies, which S&P said it considers “to be strategically important.” The outlook on all of the rated operating companies is stable. “The downgrade reflects our view that ANICO will likely have difficulty maintaining its competitive position in its core life, annuity, and property/casualty businesses as a result of the pressures associated with operational weaknesses combined with its relatively small scale compared with other multiline companies,” explained credit analyst David Zuber. “This is demonstrated in part by the company’s challenge to quickly implement strategic decisions into positive action, such as the mitigation of underwriting losses in its property/casualty operation.” However, S&P also noted that the “company has successfully managed multiple distribution channels tailored to match products targeted toward the middle-income demographic.” S&P said the stable outlook for the ratings reflects its opinion that the “continued strong performance of its other diversified business segments, specifically the life and annuity businesses, will offset potential future property/casualty underwriting losses.” S&P also said it expects that the “group will maintain a financial profile that supports the rating and will continue to execute strategic initiatives to address its long-term goals and objectives.” S&P said it does not “expect to raise the rating in the next two years. Although not likely, we could lower the rating in the next 12-24 months if the company is unable to maintain sales, if capital adequacy deteriorates to lower than what we expect for the ‘A’ rating category, if a combined ratio for the property/casualty business exceeds 110 percent with more-than-normal catastrophes (or 105 percent without), or if a pretax generally accepted accounting principles (GAAP) return on assets for the life and annuity operations falls to 80 basis points or lower.”

Standard & Poor’s Ratings Services has lowered its rating on Mariah Re Ltd.’s Series 2010-1 Notes to ‘CCC(sf)’ from ‘CCC+(sf)’ and at the same time revised the CreditWatch status on the notes to negative from developing. S&P explained: “On June 27, 2011, we lowered the rating on Mariah Re Ltd.’s Series 2010-1 notes to ‘CCC+(sf)’ from ‘B(sf)’ and revised the CreditWatch status to developing. We indicated that future rating actions would depend on the occurrence and magnitude of subsequent covered events. We published an update on Sept. 6. Since Sept. 6, Mariah Re reported losses related to one new covered event (Catastrophe Series 58), and updated the loss amounts for Catastrophe Series 38, 45, 46, 53, and 55. The current sum of reported covered losses is $790.15 million. Given an initial attachment level of $825 million, $34.85 million of covered losses can be incurred before there is a reduction in the outstanding principal balance. There was one other event–Catastrophe Series 60–but the loss amount related to this event was $9.84 million, which is just less than the $10 million threshold for a qualifying event. We have been told the loss amount for this event has been finalized. Regarding the covered events to date, the loss amounts related to Catastrophe Series 42, 45, 46, 48, 53, 54, 55, and 58 have not been finalized.” S&P said it expects “to receive additional updates for some or all of these events by the end of October and will take rating action as necessary.”

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A’ (Excellent) and the issuer credit rating to “bbb” from “a” of Ohio-based German Mutual Insurance Company and has assigned a negative outlook for the ratings. Best said its rating actions “follow German Mutual’s continued unprofitable underwriting performance, resulting in an unfavorable trend in the company’s risk-adjusted capital position, which remains adequate relative to its rating level. The company continues to experience significant losses attributable to weather related events and an increased frequency of fire related losses.” In addition Best said that “volatility in the equity markets continues to contribute to fluctuations in German Mutual’s surplus position, as the company maintains a high equity investment leverage position.” However, Best also noted that “management continues to focus on German Mutual’s competitive position, through enhanced underwriting efficiencies, product line diversification and new technology initiatives, aimed at improving the company’s expense ratio, which remains elevated as compared to the industry composite.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Des Moines, Iowa-based Centurion Casualty Company (CCC). The company is owned by Wells Fargo Financial, Inc. (WFFI), which is ultimately owned by Wells Fargo & Company (WFC). The outlook for both ratings is stable. The ratings reflect “CCC’s excellent risk-adjusted capitalization and consistently profitable operating results,” said Best. As partial offsetting factors Best noted that the “majority of the CCC’s business, including its dominant involuntary unemployment insurance (IUI), is currently in run off as the company explores potential growth opportunities.” However, Best further stated that the outlook for the ratings is based on its “expectation that the company will continue to report solid, albeit lower, operating earnings over the medium term and will maintain its excellent capitalization. In July 2010, WFC announced it was discontinuing WFFI’s consumer lending operations, and in addition to closing WFFI’s U.S.-based store network (its Canadian store network was closed in June 2010), WFC would realign the remaining lines of business under the WFFI umbrella to other areas in the WFC organization. Included in this realignment was CCC, which had benefited from a long-standing relationship with WFFI, with the distribution of its credit insurance products linked to WFFI’s consumer loans.” Best indicated that “since August 2010, the management of CCC has been realigned to Wells Fargo Insurance, Inc. (WFII), an independent, full service, nationwide agency based in Minneapolis, MN, which also manages captive companies that reinsure credit life and accident and health (A&H) insurance coverages for customers of WFC. CCC management is working closely with the executive management at WFII to determine and define the scope and strategy of CCC’s ongoing business model.” Best said it would “continue to monitor the development of new business plans for CCC under the new management structure. While CCC is substantially capitalized, management states there are no plans to take capital out of the company at this time.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B’ (Fair) from ‘B++’ (Good) and issuer credit rating (ICR) to “bb+” from “bbb” of Wisconsin-based Mt. Morris Mutual Insurance Company, and has revised its outlook on the ICR to negative from stable, while the outlook for the FSR is stable. Best explained that it took the actions on the ratings following Mt. Morris'” approximate 40 percent decline in policyholder surplus as of the second quarter 2011, due to its significant underwriting losses. As a result, the company’s risk-adjusted capitalization substantially deteriorated. The ratings also recognize the company’s elevated underwriting and investment leverage, limited product diversification and geographic concentration of risks in Wisconsin, which exposes Mt. Morris to competitive market conditions, as well as frequent and severe weather-related events.” Best also noted that these negative rating factors are partially offset by Mt. Morris’ “generally positive operating performance over the last five years and local market knowledge.”

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