Ratings Recap: HSB, Southern General/Green Star, DAKOTACARE

October 14, 2011

A.M. Best Co. has upgraded the financial strength rating (FSR) to A++ (Superior) from ‘A+’ (Superior) and the issuer credit ratings (ICR) to “aa+” from “aa-” of The Hartford Steam Boiler Group (HSB) and its members. The outlook for all of the ratings is stable. HSB’s rating upgrades places it “in line with its stand alone ratings and recognizes the benefits derived from synergies with its ultimate parent, Munich Reinsurance Company,” Best explained. “HSB’s relationship with Munich Re has provided access to new markets in continental Europe and refocused the U.S. business on HSB’s core equipment breakdown coverage. Furthermore, HSB’s already robust enterprise risk management (ERM) practices will receive additional benefits from Munich Re’s extensive ERM resources.” Best also indicated that the rating upgrades “reflect HSB’s distinctive business profile, excellent risk-adjusted capitalization, strong underwriting performance and reserving history. HSB is a leading provider of boiler and machinery, specialty engineering insurance and machinery inspection services, and it continues to maintain this position with superior loss control capacity, technical expertise and unique industry database. When compared to the industry average, HSB maintains significantly lower combined ratios. Elevated expense ratios, attributed to HSB’s focus on loss prevention, analysis and risk assessment processes are mitigated by HSB’s consistently low loss ratios, which are a result of its comprehensive knowledge of its risk exposures derived from those processes. Best summarized the ratings affected as follows:
The FSR has been upgraded to ‘A++’ (Superior) from ‘A+’ (Superior) and the ICR has been upgraded to “aa+” from “aa-” for The Hartford Steam Boiler Group and its following members:
— The Hartford Steam Boiler Inspection and Insurance Company
— The Hartford Steam Boiler Inspection and Insurance Company of Connecticut
— The Boiler Inspection and Insurance Company of Canada
— HSB Engineering Insurance Limited

A.M. Best Co. has downgraded the issuer credit rating (ICR) to “bbb” from “bbb+” and affirmed the financial strength rating (FSR) of ‘B++’ (Good) of Southern General Insurance Company (SGIC). Best also affirmed the FSR of ‘B++’ (Good) and ICR of “bbb” of GreenStar Insurance Company, an affiliate of SGIC. The outlook for all of the ratings is stable. All entities are domiciled in Marietta, Georgia. The rating actions reflect SGIC’s “unfavorable operating performance in recent years, particularly as impacted by its elevated expense structure,” said Best. However the ratin g agency also noted that in “response to declining operating trends, the company has taken aggressive actions to reduce expenses and previously had withdrawn from the homeowners’ line of business.” In addition Best said “SGIC’s favorable risk-adjusted capitalization and consistent loss and loss adjustment expense ratios, which continue to outperform the industry composite,” should be considered as offsetting positive factors. The ratings and outlook of GreenStar are supported by its “favorable risk-adjusted capitalization, solid fee income and conservative investment portfolio,” Best explained. However, as partial offsetting factors Best cited “the company’s variable operating performance in recent years, as well as its limited geographic spread and product offerings.”

A.M. Best Co. has affirmed the financial strength rating of ‘B’ (Fair) and issuer credit rating of “bb+” of South Dakota State Medical Holding Co., Inc. d/b/a DAKOTACARE, both with positive outlooks. Best then withdrew the ratings “based on the company’s decision to no longer participate in Best’s interactive rating process.” Best said the “ratings reflect DAKOTACARE’s improved operating performance and recovering financial strength over the last two years. These positive results are based on the company’s decision (a few years ago) to terminate its participation in the Medicare Advantage Special Needs Plan. DAKOTACARE’s underwriting results continued to improve in 2010, a trend that has continued into the second quarter of 2011.”

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