Ratings Recap: Iron Horse, Imperial Fire, Plymouth Rock, Bunker Hill

June 25, 2012

A.M. Best Co has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a+” of Vermont-based Iron Horse Insurance Company, both with stable outlooks. The ratings reflect Iron Horse’s “adequate risk-adjusted capitalization, explicit parental support, experienced management team and the role it plays as a direct captive subsidiary of Chevron Corporation,” Best explained. As a partial offsetting factor Best cited “Iron Horse’s high net loss exposures, as the coverages provided tend to result in claims that are characterized as low frequency but high severity.” However, Best also indicated that “this is somewhat mitigated by the captive’s ability to secure capital from Chevron in the event of a covered shock loss. Iron Horse directly benefits from the attention of Chevron’s experienced risk management team. Iron Horse also gains from Chevron’s global operations, which provide favorable geographic spread of risk and line of business diversification.” Best indicated that “in its role as a captive insurer, Iron Horse, along with Heddington Insurance Limited, currently provides broad and competitive global insurance products for Chevron and its subsidiaries. The insurance needs of Chevron are supplied through these captive operations (where appropriate) and the commercial market. Iron Horse and the other Chevron captives provide comprehensive coverage above Chevron’s internal retentions, while Iron Horse’s reinsurance is placed through a corporate wide plan with the world’s leading providers of capacity, resulting in a diversified and balanced distribution of reinsurers.”

A.M. Best Co. has downgraded the financial strength rating to ‘B+” (Good) from ‘B++’ (Good) and issuer credit rating to “bbb-” from “bbb” of Louisiana-based Imperial Fire and Casualty Insurance Company, and has revised its outlook on the ratings to stable from negative. The rating actions reflect “Imperial’s generally negative underwriting performance, which could not be offset by its declining investment income,” Best explained. “This has led to pre-tax operating losses in three of the past five years. In addition, increased underwriting losses in 2011 as reflected by a combined ratio of approximately 108 percent, primarily caused by catastrophe and other weather-related events has hindered the company’s capital base. This is reflected by an approximately 10 percent decline in surplus in 2011, which has caused risk-adjusted capitalization to somewhat decline over the past year.” Best also noted that Imperial’s “core personal auto line of business has continued to underperform partly due to unfavorable results from its relatively newly acquired Florida book. Weather-related losses primarily in the Texas property book has led Imperial to undertake several underwriting initiatives including restraining net premium exposures, taking aggressive rate increases, placing a greater emphasis on risk management tools such as policy scoring and territorial pricing, and exploration of additional capital resources.” However, Best said: “Despite these efforts to turn around its operating performance and improve its risk-adjusted capitalization, the company still faces a challenging operating environment for 2012. Although Imperial’s risk-adjusted capitalization level is consistent with its current rating level, further downward movement in the form of a revised outlook and/or a downgrading of the ratings could occur should there be a continued deterioration in Imperial’s risk-adjusted capitalization levels and/or a continuation of its recent negative operating performance trend. While upward movement in the ratings is unlikely in the near term, an eventual improvement in the ratings and/or outlook will require significant improvement in the company’s risk-adjusted capitalization, along with a turnaround in its underwriting performance and operating results.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of the members of Plymouth Rock Assurance Group (PRAG), which includes intercompany pool members, Plymouth Rock Assurance Corp. (PRAC) and Pilgrim Insurance Company, as well as the operations of affiliate, Mt. Washington Assurance Corporation, based in Concord, New Hampshire, which is fully reinsured via a quota share arrangement. The outlook for all ratings is stable. Best then said it has withdrawn the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Plymouth Rock Assurance Casualty Company (PRACC) “as a result of its removal from the PRAG pooling arrangement. PRACC was subsequently sold to affiliate, Bunker Hill Insurance Company, and renamed Bunker Hill Insurance Casualty Company [See below].” All companies are domiciled in Boston, Massachusetts, except where specified. The ratings of PRAG reflect its “solid risk-adjusted capitalization, generally profitable operating performance, positive loss reserve development and reduced dependence on reinsurance,” said Best. “The group continues to enhance its pricing segmentation on risks that meet its underwriting requirements and implement claims handling process improvements that enhance claim severity. PRAG’s operating results may be pressured by its elevated underwriting and investment leverage, geographic concentration, increased competition and the uncertainty regarding the future of Massachusetts’ insurance regulation. Positive future rating actions would be contingent upon PRAG establishing a trend of underwriting profitability along with strong risk-adjusted capitalization. Conversely, negative rating actions are possible if operating losses were to lead to a decline in the company’s risk-adjusted capitalization.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B++’ (Good) and issuer credit rating (ICR) of “bbb” of Bunker Hill Insurance Company (BHIC), both with stable outlooks. Best has also assigned an FSR of ‘B++’ (Good) and an ICR of “bbb” to Bunker Hill Insurance Casualty Company (BHICC), the newly acquired subsidiary of BHIC [See above]. The outlook assigned to these ratings is stable. Via an intercompany pooling agreement, these companies are collectively known as the Bunker Hill Insurance Group. All of the companies are domiciled in Boston, Massachusetts. The ratings of Bunker Hill reflect its “adequate risk-adjusted capitalization, generally favorable operating performance and the specified financial support provided by its ultimate parent, The Plymouth Rock Company Incorporated, in the form of an ongoing capital support agreement,” Best explained. In addition, the ratings “recognize the benefits derived from management’s extensive knowledge and experience in its marketing territories as well as its strong agency relationships. The newly acquired BHICC will provide Bunker Hill with rating flexibility and help to further diversify the group’s spread of risk.” As partial offsetting factors Best cited Bunker Hill’s “sole focus on property risk, dependence on reinsurance and significant exposure to New England weather losses as demonstrated in 2011. Positive future rating movement would be contingent upon Bunker Hill returning to a trend of underwriting profitability while showing an improving trend in risk-adjusted capitalization. Conversely, negative rating actions are possible if operating losses were to lead to a decline in risk-adjusted capitalization.”

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