Ratings Roundup: Missouri Valley, Berkley (Notes), Old United, Blue Whale (Pfizer), Zale, Infinity

March 23, 2012

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of South Dakota-based Missouri Valley Mutual Insurance Company (MVM). Best explained that the revised outlook for MVM reflects its “continued operating losses resulting from frequent weather-related underwriting losses and the continued erosion in its policyholders’ surplus and risk-adjusted capitalization. Additionally, MVM’s modest size and geographic concentration make its earnings susceptible to frequent and severe weather-related losses, market pressures and regulatory changes. Due to MVM’s modest premium base, small changes in operating losses, expenses and reinsurance costs can significantly impact its combined ratio.” However, Best also indicated that MVM’s “adequate risk-adjusted capitalization, which is derived from its conservative investment profile and moderate underwriting leverage,” somewhat offset the negative rating factors. In addition Best said the ratings recognize “MVM’s long-standing agency relationships and local market knowledge in South Dakota. Key rating factors that could trigger negative rating actions include a material deterioration in MVM’s underwriting and operating results, with continued erosion of its policyholders’ surplus and risk-adjusted capitalization.”

A.M. Best Co. has assigned a debt rating of “a-” to the $350 million 4.625 percent senior unsecured notes, due 2022 issued by W. R. Berkley Corporation with a stable outlook. “The total net proceeds for the offering are expected to be used for general corporate purposes, including the repayment of indebtedness,” Best noted. “The existing ratings of W. R. Berkley and its insurance subsidiaries are unchanged. At December 31, 2011, W. R. Berkley’s unadjusted debt-to-capital (including trust preferred securities) stood at 30 percent, the midpoint of its target range of 25 percent to 35 percent, and within A.M. Best’s financial leverage guidelines for W. R. Berkley’s current rating level. The company’s financial leverage has moderated in this range over the last couple of years, a noted decrease from several years ago.” However, Best also pointed out that “its leverage has remained above industry peers. Offsetting these concerns are the consistency of W. R. Berkley’s operating earnings, excellent financial flexibility and carefully managed capital structure.” With the inclusion of this new $350 million senior note and the anticipated repayment of indebtedness coming due in 2013, Best said it “expects W. R. Berkley’s pro forma unadjusted debt-to-capital, including trust preferred debt at year-end 2012 will decease to approximately 30 percent. While the competitive market environment for specialty commercial lines property/casualty insurance products will continue to place pressure on underwriting results in 2012, W. R. Berkley’s earnings are expected to remain solid and its cash coverage ratios should remain supportive of the assigned rating.”

A.M. Best Co. has upgraded the issuer credit rating (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) of Kansas-based Old United Casualty Company (OUC), and has upgraded the FSR to ‘A’ (Excellent) from B++ (Good) and ICR to “a+” from “bbb+” of Arizona-based Old United Life Insurance Company (OUL). The outlook for all of the ratings is stable. The upgrading of the ICR of OUC “reflects its sustained operating profitability, solid internal surplus generation and management’s highly specialized underwriting expertise,” Best explained. “OUC specializes in providing vehicle service contracts to affiliated automobile dealerships that are owned by its ultimate parent, Van Enterprises, Inc. Through this affiliation, OUC benefits from the marketing and distribution platforms provided by these dealerships, while maintaining superior loss control capabilities.” Best also explained that the rating upgrades for OUL acknowledge its view of its “fully integrated role within the group, 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. The ratings also consider OUL’s favorable growth in capital as reflected in its solid risk-adjusted capitalization, as well as its historical positive earnings stream and its captive distribution network.” Best also noted that OUL’s investment portfolio is “very short term in nature with little interest rate risk and high levels of liquidity.” Best added, however, that “while recognizing these positive rating factors for both companies, growth within the enterprise depends upon the health and strength of the economy, specifically domestic auto sales. While auto sales have improved in the last two years, a potential decrease in consumer activity can still adversely impact the associated opportunities to market the group’s core products.” Best said it “believes the companies are well positioned at their current ratings. Negative rating actions could occur if OUC or OUL’s capitalizations and/or operating performances fall 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 materially changes.”

A.M. Best Co. has upgraded the issuer credit rating to “a+” from “a” and affirmed the financial strength rating of A (Excellent) of Vermont-based captive insurer Blue Whale Re Ltd., both with stable outlooks. “The ratings reflect Blue Whale’s strong capitalization and its conservative operating strategy,” said Best. “It also considers the company’s critical and central role and favorable profile as part of the Pfizer Group, as well as the excellent performance of its operations.” As partial offsetting factors, Best cited “Blue Whale’s very large gross and net underwriting exposures to property losses and its dependence on reinsurance. Blue Whale is a single parent captive of Pfizer Inc., the largest pharmaceutical company in the world. As it (re)insures Pfizer’s global property exposures, Blue Whale plays an important position in Pfizer’s overall enterprise risk management and assumes a critical role in protecting the Pfizer Group’s assets. Thus, Blue Whale benefits from Pfizer Group’s extensive risk management and loss control programs.” Best also indicated that the “captive operates at conservative underwriting leverage levels; however, it provides coverages with extremely large limits and its gross exposures per loss occurrence are elevated. Although Blue Whale benefits from reinsurance protection, its net retentions also remain very substantial. Reinsurance is provided by a large panel of reinsurers, and Blue Whale relies on significant capacity to be able to support its obligations. As such, it is heavily dependent on reinsurance.” Best nonetheless added that it “recognizes the quality of the reinsurers and the substantial financial resources and support available to the captive as part of the Pfizer Group. Positive rating actions could occur if there is a sustainable and long-term improvement in the operating performance and capital strength of Blue Whale and Pfizer. Conversely, negative rating actions could occur as a result of material operational and performance issues at both Blue Whale and Pfizer. Rating pressure would be likely if there were any adverse changes to many regulatory standards to which Pfizer has adhered. The potential for future acquisitions and the associated integration risks and company profile changes could lead to both positive and/or negative pressure on the ratings, depending on the acquisition details.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of Texas-based Zale Indemnity Company (ZIC), both with stable outlooks. Best said, the ratings “reflect ZIC’s profitable earnings, strong underwriting performance and favorable balance sheet liquidity. In the past two years, ZIC has significantly increased its premium volume as well as maintained its strong underwriting metrics. Additionally, ZIC has grown its surplus while still paying a sizeable dividend to its parent, Zale Corporation. ZIC, a single parent captive of Zale, writes credit property, credit involuntary unemployment, credit disability and credit leave of absence coverage on a direct basis for Zale’s private label credit card customers.” Best also noted that ZIC “writes liability coverage that indemnifies the parent for the replacement of merchandise if it is stolen from a customer. This is one of the benefits offered through Zale’s Lifetime Jewelry Protection Plan With Limited Theft Replacement Service. The increase in written and earned premiums can be primarily attributed to ZIC’s state licensing initiatives, increasing its certificates of authority, as well as the increased sales at Zale. While ZIC’s ratings are currently stable, positive rating triggers could include a material improvement in its operating results at the parent level in conjunction with continued surplus appreciation and strong risk-based capitalization at the captive level. Negative rating triggers could be caused by adverse economic conditions, as ZIC and Zale’s businesses are driven by the health of the overall U.S. economy and subject to the effects of potential high interest rates on consumer borrowing and spending. Other negative triggers would include deterioration in operating results and risk-based capitalization.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Alabama-based Infinity Property & Casualty Group and its operating members [See below]. Best also affirmed the ICR of “bbb” and debt rating of “bbb” on $195 million 5.50 percent senior unsecured notes due 2014, issued by Infinity P/C’s parent, Infinity Property & Casualty Corporation (IPCC). The outlook for all of the ratings is stable. “The rating affirmations of Infinity P/C reflect its excellent risk-adjusted capitalization, favorable five-year operating performance and strong non-standard automobile market presence,” Best explained. “Infinity P/C’s favorable underwriting profitability is attributed to management’s product line expertise, local market knowledge and utilization of sophisticated technologies within the pricing, risk selection and claims handling process. Infinity P/C ranks among the leading non-standard automobile writers in the United States. In addition, Infinity P/C’s ratings recognize the financial flexibility provided by IPCC, which has modest financial leverage measures and favorable fixed interest coverage ratios.” As partial offsetting factors, Best cited Infinity P/C’s “limited business profile, with policies comprised predominantly of non-standard auto and approximately two-thirds of its direct written premiums concentrated in two key states. As a result, earnings are susceptible to increased competition in the non-standard auto segment and changes in the regulatory, judicial and legislative environment in its largest states. This was evident in 2011, when Infinity P/C’s underwriting results deteriorated, driven by adverse loss reserve development primarily related to an increase in loss severity in Florida’s personal injury protection coverage. In addition, dividend distributions over the previous five-year period to IPCC limited Infinity P/C’s ability to increase its surplus position.” However, Best also pointed out that “Infinity P/C has maintained solid earnings through rate adequacy and underwriting discipline to support its dividend expectations. While the outlook for the ratings of Infinity P/C is stable, negative rating actions could result if there is continued deterioration in the company’s operating results of 2011, driven by adverse loss reserve development, and/or surplus decline, driven by significant stockholder dividend payments to IPCC. Best summarized the companies affected by its rating actions as follows: The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for Infinity Property & Casualty Group and its following operating members: Infinity Assurance Insurance Company; Infinity Auto Insurance Company; Infinity Casualty Insurance Company; Infinity Indemnity Insurance Company; Infinity Insurance Company; Hillstar Insurance Company; Infinity Preferred Insurance Company; Infinity Premier Insurance Company; Infinity Reserve Insurance Company; Infinity Safeguard Insurance Company; Infinity Security Insurance Company; Infinity Select Insurance Company; Infinity Standard Insurance Company; Infinity County Mutual Insurance Company.

Was this article valuable?

Here are more articles you may enjoy.