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Best Affirms Meadowbrook and Subs Ratings; Removes from Under Review

April 22, 2013

A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of the subsidiaries of Michigan-based Meadowbrook Insurance Group, Inc. (MIGI), which operate under an intercompany reinsurance pooling agreement, collectively referred to as Meadowbrook Insurance Group.

Best also has removed from under review with negative implications and affirmed the ICR of “bbb-” of MIGI. The outlook assigned to all of the ratings, however, is negative.

These rating actions are in follow up to Best’s October 19, 2012 press release and “take into consideration some of the remedial actions taken by MIGI since its third quarter 2012 earnings announcement and reserve charge,” the bulletin explained.

“This includes capital enhancements through the monetization of investments, quota share reinsurance (surplus relief) and the termination of certain underperforming books of business.” Best added that it had “also considered management’s guidance in 2013 and MIGI’s expectation to restore profitability and capital via retained earnings, as well as MIGI’s recent capital raise that occurred on March 18, 2013, where it sold in a private offering an aggregate principal amount of $100 million of its cash convertible senior notes due 2020.

“After completion of the offering, $70 million of capital was contributed to Meadowbrook. This allowed for risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) to return to more historical levels and allows for a cushion during periods of modest operating profitability. Despite the issuance of these notes, the projected debt-to-capital score will remain within A.M. Best’s guidelines.”

Best explained that the negative outlook “reflects the execution risk in Meadowbrook meeting its business plans in the near term.” The rating agency said it would “continue to monitor Meadowbrook’s capitalization to ensure that it remains within an acceptable range for its current ratings.”

Best will also “continue to watch the recent adverse loss experience on the newer programs on Meadowbrook’s overall operating performance, particularly the workers’ compensation business.”

The report added: Best expects that “given the extensive review of its reserve base, no material adverse development will be recorded going forward. In addition, operating performance should be positively impacted by the recent rate increases on certain business classes as well as the elimination of business that has been deemed unprofitable in the future.

“Positive rating actions for Meadowbrook are unlikely in the near term. Key factors that could result in negative rating actions include deterioration in the financial strength of its ultimate parent, MIGI, a significant or sustained decline in its risk-adjusted capitalization, further material adverse development in its reserves or prolonged unprofitable underwriting and operating results.”

Best’s report summarized the companies affect ted by the rating actions as follows:
The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for the following Meadowbrook Insurance Group, Inc. subsidiaries:
•Star Insurance Company
•Century Surety Company
•Savers Property and Casualty Insurance Company
•ProCentury Insurance Company
•Williamsburg National Insurance Company
•Ameritrust Insurance Corporation

Source: A.M. Best

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