Ratings Roundup: Plateau Group, Gerling America

February 21, 2012

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating (ICR) to “a-” from “bbb+” of Plateau Insurance Company (PIC). Best also affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of PIC’s parent company, Plateau Casualty Insurance Company (PCIC). The outlook for all of the ratings is stable. Both companies are domiciled in Crossville, Tennessee. Best explained that the rating upgrades consider PIC’s “consistent growth in capital as reflected in its solid risk-adjusted capitalization, as well as its positive earnings stream and the expanded geographic diversification in its distribution network.” The ratings also reflect Best’s view of PIC’s role “as a subsidiary of the Plateau Group, Inc. (life and property/casualty), its ability to deliver a broad range of credit insurance product offerings and services to its customers, and the synergies gained by common management, marketing platforms and shared services.” In addition Best also observed that “PIC’s investment portfolio is very short term in nature with little interest rate risk and high levels of liquidity.” Best said it believes that PIC is “well positioned to grow premium volume organically given the growth in its distribution network, and opportunistically from business flow from entities exiting the credit insurance market.” However, Best also indicated that “while recognizing PIC’s solid capital position and the consistent profitability,” its growth within the enterprise “depends upon the health and strength of the economy, specifically domestic auto sales.” Best also, indicated that “while auto sales have improved over the past year, a potential decrease in consumer activity can still adversely impact the associated opportunities to market the company’s core credit products.” The ratings also take into account the “challenges PIC faces in balancing a high level of new premium growth while maintaining its historical consistent financial profitability in the short term. The rating affirmations of PCIC recognize its historical profitability, niche market expertise and supportive capitalization. The rating affirmations also recognize PCIC’s role within the Plateau Group, its importance as a licensed property/casualty insurer within the group as well as the same inherent benefits afforded by common management, marketing and shared services.” Best noted that PCIC is “primarily a credit property/casualty insurance writer that offers various consumer credit insurance products marketed by consumer finance companies and community banks, and extended service contracts as well as GAP insurance marketed by automobile dealers.” Best said it believes the “companies are well positioned at the current ratings. Negative rating actions could occur if PIC’s capitalization and/or operating performance falls markedly short of Best’s expectations. Negative rating pressure also could occur if the business profile and/or the relative importance of either insurance company changes materially.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Chicago-based HDI-Gerling America Insurance Company (HDI-GAIC), both with stable outlooks. The ratings of HDI-GAIC “largely reflect its solid risk-adjusted capitalization and the benefit of the explicit support provided through substantial internal reinsurance by its immediate parent, HDI-Gerling Welt Service AG (HG-WS) (Germany), and the immediate parent of HG-WS, HDI-Gerling Industrie Versicherung AG (HG-I) (Germany), via significant facultative cessions and 95 percent quota share treaties, which have been in effect since July 1, 2008 and January 1, 2000, respectively,” Best explained. The ratings also reflect “additional support provided by a retroactive reinsurance cover with HG-I that covers any net adverse development on policies incepting prior to January 1, 2000, and the implied support of future parental commitment. HDI-GAIC principally markets global-linked commercial lines business to HG-I clients that have operations in the United States. Given the substantial explicit support HDI-GAIC has in place with HG-WS and HG-I, any upward or downward movement in the ratings of either HG-WS or HG-I would influence HDI-GAIC’s ratings. In addition, if HDI-GAIC’s capitalization or operating performance falls markedly short of Best’s expectations, negative rating actions could occur.”

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