Ratings Recap: Great Plains, ProAssurance, Community, German Mutual

August 16, 2012

A.M. Best Co. has assigned a financial strength rating of ‘B++’ (Good) and an issuer credit rating of “bbb” to Iowa-based Great Plains Casualty, Inc., both with stable outlooks. The ratings reflect Great Plains’ “adequate risk-adjusted capitalization, limited but favorable operating performance since its inception and in-depth knowledge of the commercial trucking industry,” said Best. “Great Plains maintains adequate risk-adjusted capitalization, despite the fact that nearly 50 percent of its surplus is held in an affiliated investment, due mainly to its conservative underwriting leverage measures. The ratings also acknowledge the relatively favorable financial leverage and interest coverage of its parent holding company, HillCrest Holdings, Inc. In addition, Great Plains benefits from the expertise gained by sharing a common management with its sister company, CRST International Inc., which provides transportation solutions and services to manufacturers and distributors in the United States and Canada.” As offsetting factors Best cited “Great Plains’ narrow product focus and inherent risk as a relatively new company attempting to gain market share and expand its geographic presence.” Best added that while it “believes Great Plains’ ratings and outlook are well positioned at the current rating level, factors that may lead to positive rating actions include a trend of positive operating and underwriting profitability that outperforms the composite while enhancing capitalization through organic surplus growth. Factors that could lead to negative rating actions include a material deviation from management’s projections, a lack of underwriting discipline, which results in a trend of deteriorating underwriting and operating performance to a level below the company’s peers, or an erosion of surplus that causes a significant decline in risk-adjusted capital.”

A.M. Best Co. has withdrawn the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of ProAssurance National Capital Insurance, which is headquartered in Washington D.C., following its merger with and into Alabama-based ProAssurance Indemnity Company, Inc. On July 1, 2012, ProAssurance Corporation (PRA) completed the merger of these two operating companies. “ProAssurance National policyholders have become policyholders of ProAssurance Indemnity as a result of this merger,” Best noted. “This transaction is part of PRA’s ongoing strategy to streamline its insurance company structure into fewer operating companies in order to maximize efficiency.”

A.M. Best Co. has upgraded the financial strength rating to ‘B++’ (Good) from ‘B+’ (Good) and issuer credit rating to “bbb” from “bbb-” of Wisconsin-based Community Insurance Corporation (CIC), and has revised its outlook for both ratings to stable from negative. Best explained that the rating actions “reflect the explicit support provided by CIC’s parent, Wisconsin County Mutual Insurance Corporation (WCMI) (Madison, WI), which includes the implementation of an internal reinsurance agreement earlier this year as well as the quota sharing of all prior liabilities to WCMI.” In addition Best said the ratings further reflect “CIC’s corrective action plans implemented to improve its operating performance.” As an offsetting factor Best noted “CIC’s history of operating losses recorded annually since its inception and geographic concentration as a single state insurer operating exclusively in Wisconsin with minimal product diversification. Nonetheless, following the inception of CIC’s 100 percent internal reinsurance arrangement with WCMI, the company’s results will generally reflect that of its investment returns as there will be no net underwriting commitments.” Best explained that “CIC provides general liability and commercial auto liability to cities, towns and villages, as well as municipal governments and other institutions that are governmental in nature. Additionally, the company provides liability coverages to school districts within Wisconsin.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B+’ (Good) from ‘B++’ (Good) and issuer credit rating to “bbb-” from “bbb” of Ohio-based German Mutual Insurance Company, and Best’s outlook for both ratings is negative. The rating actions are based on German Mutual’s “declining risk-adjusted capitalization, significant deterioration in underwriting and operating results in recent years and its continuing challenges to improve operating profitability,” Best explained. “In 2011, the company’s significant decline in surplus was driven by catastrophic wind events as well as frequent and severe fire losses. In 2012, a major wind storm caused significant losses and is estimated to be the largest in German Mutual’s recent history with a gross loss estimate of approximately $15.0 million.” Best indicated that the continuation of the negative outlook “reflects German Mutual’s trend of weak operating performance, dependence on reinsurance and the challenges to improve operating results in the near term.” However, Best also noted that “positive rating factors include German Mutual’s long-standing market presence and agency relationships that have resulted in excellent business persistency in its core markets. Factors that could trigger further negative rating actions include continued deterioration in German Mutual’s underwriting and operating results and further decline in its risk-adjusted capitalization.”

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