Ratings Roundup: Hiscox (US), Western Mutual

November 28, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Chicago-based Hiscox Insurance Company, Inc. (HICI), both with stable outlooks. The ratings of HICI reflect the “consolidation of HICI and its inactive subsidiary, Hiscox Specialty Insurance Company, Inc,” Best explained; adding that it has based the ratings on its “group rating methodology and taken into consideration the role and strategic importance of HICI to its Bermudian parent holding company, Hiscox Ltd.’s overall U.S. strategy.” Best said the ratings also “reflect the explicit support provided to HICI through substantial quota share reinsurance with an affiliate, Hiscox Insurance Company (Bermuda) Limited and a guarantee on all third-party reinsurance recoverables with Hiscox. The ratings also reflect the implied commitment from Hiscox that it will provide future parental support, if needed. HICI continues to maintain strong stand-alone capitalization, which is driven by low underwriting leverage and negligible investment leverage. Best added that it “will monitor the operating performance of HICI, given its premium and exposure growth during a period of competitive market conditions.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a+” of Western Mutual Insurance Pool and its member companies, Western Mutual Insurance Company, Residence Mutual Insurance Company and Arizona Home Insurance Company. All companies are domiciled in Irvine, Calif. unless otherwise specified. The rating actions are “due to Western Mutual’s continued favorable underwriting performance, strong risk-adjusted capitalization and declining underwriting leverage trend in recent years,” Best explained. The ratings also “recognize the fact that the group is able to employ multiple distribution channels to market its products. Besides brokers and independent agents, Western Mutual also is able to leverage its strong products and marketing efforts, to facilitate steady growth of its direct business of homeowners’ insurance. As partial offsetting factors, Best cited Western Mutual’s “concentration of business in California, which exposes earnings and surplus to volatility from changes in that state’s regulatory and judicial climate, competitive and economic conditions, as well as catastrophe risks. Future positive rating actions may result from Western Mutual’s continuing to produce strong underwriting results, along with its strengthened risk-adjusted capitalization. However, negative rating actions could result if underwriting performance falls markedly short of A.M. Best’s expectations.”

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