Ratings Roundup: Torus Specialty, Assurant, National American

November 10, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Torus Specialty Insurance Company and Torus National Insurance Company, both of which are domiciled in Wilmington, Delaware, and are wholly owned subsidiaries of their ultimate parent, Bermuda-based Torus Insurance Holdings Limited. The outlook for both ratings is stable. Best explained that the ratings are based upon its “group rating methodology and take into consideration the roles and strategic importance of Torus Specialty and Torus National to Torus’ overall U.S. strategy. The ratings also reflect the explicit support provided through substantial quota share reinsurance of Torus Specialty and Torus National’s net business by their U.K. based affiliate, Torus Insurance (UK) Limited.” In addition Best noted that Torus UK “provides an aggregate stop loss agreement to Torus Specialty and Torus National. The ratings also reflect the implied support of future parental commitment. Torus Specialty and Torus National maintain a strong stand-alone capitalization, which is driven by low underwriting leverage, negligible investment leverage and capital contributions from Torus.” Best said it would “closely monitor the operating performance of these relatively new companies given the execution risk to achieve business projections and the competitive market.”

Standard & Poor’s Ratings Services has assigned its preliminary ‘BBB’ senior debt, ‘BBB-‘ subordinated debt, and ‘BB+’ preferred stock ratings to Assurant Inc.’s universal shelf filed with the SEC. This shelf replaces the expiring shelf from Nov. 6, 2008 and has an undesignated notional amount. The ‘BBB/A-2’ counterparty credit rating on Assurant Inc. “reflects the group’s leading niche positions in several specialty insurance businesses and its strong and diverse earnings sources through multiple operating entities, large distribution partners, and fee-based businesses,” S&P explained. “Strong capital adequacy and strong financial flexibility with strong leverage and coverage metrics also support the rating.” As offsetting factors S&P cited “Assurant Health’s continued weak operating performance, the lingering negative effects of the continued slow economic recovery on premium volumes and profit margins, and high exposure to litigation and insurance regulation risks.” The rating agency added that its ‘BBB’ counterparty credit rating on Assurant Inc. “is two notches below the ‘A-‘ financial strength ratings on Assurant Inc.’s core and strategically important subsidiaries. This is less than the standard three-notch difference to reflect the diverse sources of holding-company income, with operating-company dividends coming from multiple legal entities domiciled in different states. The notching also reflects Assurant’s earnings from varied insurance business segments that appear to have limited covariance in exposure to various economic influences and business cycles.” However, S&P added that it believes “the contributions from international operations are not yet meaningful. We consider Assurant’s financial flexibility strong with modest financial leverage and strong coverage metrics. As of Sept. 30, 2011, GAAP financial leverage was about 18 percent and fixed-charge coverage (adjusted for operating leases and intangible assets) remained strong at 8.9 xs despite significant catastrophe losses. The universal shelf program is intended for general corporate purposes.”

A.M. Best Co. has upgraded the issuer credit rating (ICR) to “bbb+” from “bbb” and affirmed the financial strength rating of B++ (Good) of Oklahoma-based National American Insurance Company (NAICO), both with stable outlooks. The ICR upgrade “reflects NAICO’s excellent risk-adjusted capitalization, stable operating performance and long-standing regional market presence within Oklahoma and Texas,” Best explained. “The ratings also consider the improved financial leverage and interest coverage of the organization on an enterprise basis. NAICO’s ultimate parent company, Chandler Insurance Company, Ltd., received a capital contribution of $6,979,000, which was utilized to retire an outstanding debt debenture at the immediate parent company, Chandler (USA), Inc.” As a result Best said it has “withdrawn the ICR of “bb” and debt rating of “bb” on 24 million 8.75 percent senior debentures, due 2014 of Chandler (USA), Inc. This transaction has improved the financial leverage measures of the organization, lowering the debt-to-total capital ratio, while improving interest coverage ratios going forward.” Best also indicated that both measures are within its “parameters for the current ratings.” As an offsetting factor Best cited “the relatively low level of investment earnings; and therefore, total return measures. Other offsetting factors include NAICO’s high level of reinsurance dependence to support operations, including the reinsurance placed with Chandler Ltd. This concern is somewhat mitigated by NAICO’s use of trust account deposits provided by Chandler, Ltd. Despite these concerns, the outlook reflects NAICO’s improved risk-adjusted capital position, diminishing loss reserve development reported in recent calendar years, and management’s projections for sound operating profitability over the near term.”

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