Ratings Roundup: Hiscox (U.S.), Bison, Nations

December 18, 2012

A.M. Best Co. has upgraded the issuer credit rating (ICR) to “a+” from “a” and affirmed the financial strength rating of ‘A’ (Excellent) of Chicago-based Hiscox Insurance Company, Inc. (HICI), both with stable outlooks. Best said the ratings of HICI “reflect the consolidation of HICI and its inactive subsidiary, Bracken Hill Specialty Insurance Company. The upgrading of HICI’s ICR reflects the same rating action for HICI’s affiliate, Hiscox Insurance Company (Bermuda) Limited, which provides substantial quota share reinsurance to HICI.” Best also explained that the ratings are based upon its criteria, “Rating Members of Insurance Groups,” and “take into consideration the role and strategic importance of HICI to its Bermudian parent holding company, Hiscox Ltd. and its overall U.S. strategy. The ratings also acknowledge the explicit support provided to HICI by Hiscox Bermuda as well as a guarantee on all third party reinsurance recoverables with Hiscox. The ratings also recognize the implied commitment from Hiscox that it will provide future support to HICI if needed.” Best noted that “HICI continues to maintain a strong level of stand-alone capitalization, which is driven by low underwriting leverage and minimal investment leverage” Best also said it would “continue to monitor the operating performance of HICI going forward, given that its recent premium and exposure growth has occurred during a period of competitive market conditions. Positive rating actions for HICI are unlikely in the near term. Factors that may lead to negative rating actions include a material deterioration in the company’s risk-adjusted capitalization, significant weakening in its operating results, any negative rating actions taken on Hiscox Bermuda and/or any lessening of support (implied or explicit) provided to HICI by Hiscox.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Charleston, South Carolina-based Bison Insurance Company Limited, both with stable outlooks. “The ratings reflect Bison’s historically adequate capitalization, generally favorable operating performance, conservative reserve levels and effective enterprise risk management controls,” Best explained. “The ratings also recognize Bison’s history of maintaining sufficient capital and financial resources to support its ongoing obligations. As partial offsetting factors Best cited “Bison’s volatile underwriting results due to its low frequency, high severity risk profile, coupled with its high net retained limits relative to its available capital. Additionally, the continually changing risk profile of Bison’s primary insureds directly affects its risk profile. This is mitigated by the company’s conservative reserving philosophy and the ongoing, demonstrated support from its parent, Duke Energy Corporation.” In addition Best noted that the “risk management team of Duke Energy takes a holistic approach to managing its risks and utilizes the captive as an integral part in this process. Bison’s long-term growth opportunities primarily depend on the business success of Duke Energy. Bison’s ratings take into account its potential for future earnings volatility.” Best added that in its opinion, “positive rating actions are dependent upon Bison stabilizing its operating performance as well as its risk-adjusted capitalization, materially exceeding Best’s expectations. Positive rating actions also could occur if the credit profile of Duke Energy improves. The potential for negative rating actions could result if the volatility in Bison’s operating performance exceeds Best’s expectations and results in a significant prolonged decline in its risk-adjusted capitalization. In addition, deterioration in the credit profile of the parent could impact Bison’s ratings.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘B’ (Fair) and issuer credit rating of “bb+” of Cerritos, California-based Nations Insurance Company (NIC). Best said the “rating actions recognize NIC’s enhanced risk-adjusted capitalization and positive net income growth in recent years. In addition, the ratings consider the company’s conservative investment philosophy, tempered premium growth and management’s local market knowledge.” However, Best also indicated that these positive factors “are somewhat offset by NIC’s variable underwriting performance since inception in 2008. As a single-state nonstandard private passenger automobile writer in California, the company also remains susceptible to adverse changes in the judicial, legislative and economic environments, as well as increased competition.” Best explained that the positive outlook reflects its “expectation that the ratings may be upgraded in the near term if NIC can continue its trends of positive operating performance and favorable risk-adjusted capitalization. However, if the company’s underwriting performance should decline, the positive outlook could be reconsidered.”

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