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Ratings Recap: Saturn, Western General, German Mutual, Accredited Surety

April 22, 2013

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Vermont-based captive insurer Saturn Insurance Inc. ,both with stable outlooks. Saturn is a captive of BP plc, the UK-based integrated global oil and gas company. Best said “Saturn’s ratings reflect its strong risk-adjusted capitalization resulting from low risk retention and excellent group reinsurance support. Saturn also profits from low investment risk as it maintains half of its investments in cash or short term deposits. The ratings also factor in BP’s strength and commitment towards Saturn.” Best also noted that “Saturn’s risk-adjusted capitalization is expected to remain strong over the medium term due to a low net retention of various additional lines that are expected to be written during 2013 and 2014. Saturn is currently only partly retaining environmental liability risk and is expected to start writing and fully retaining casualty risk during the course of 2013. Various other lines of business, including the transfer of workers’ compensation business currently retained by BP America Inc., are expected to be accepted during 2013 and 2014. It is anticipated that those lines will be to a majority 100 percent reinsured with Saturn’s sister company, Jupiter Insurance Limited,” which Best currently rates as ‘A’ (Excellent). Best also noted that “Saturn benefits from low investment risk and has a very liquid portfolio. Half of its investments are held in cash or short-term deposits, and the other half is loaned back to BP with excellent liquidity conditions. Saturn’s ratings also factor in BP’s strength and commitment towards Saturn, as well as reflect the importance and integration of the company in BP’s overall risk management framework.” In conclusion Best said: “Upward rating movements are unlikely at present. Downward rating actions could occur if there were a significant deterioration in Saturn’s risk-adjusted capitalization linked to evidence of no financial support from its parent, BP, and/or a material increase in the retention levels on Saturn’s current and planned fronted programs. Additionally, any deterioration in BP’s financial position would likely lead to a review of Saturn’s ratings.”

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 California-based Western General Insurance Company, and has assigned the ratings a negative outlook. Best said the downgrades for Western General reflect its “trend of poor underwriting performance over the past three years, which reduced its risk-adjusted capitalization. Underwriting losses were primarily attributable to significantly increased claims severity and the company’s rate adequacy in its core state of California. In addition to its limited product offerings, Western General maintains an elevated expense position due to its high commission structure.” On a more positive note Best indicated that despite its recent decline, “Western General continues to maintain risk-adjusted capitalization that supports its ratings. The company’s capitalization reflects its favorable loss reserve development in recent years. The ratings also consider management’s ongoing initiatives designed to improve underwriting profitability. Western General has a long-standing market presence as a niche writer of both dealer-originated and agent/broker produced non-standard auto coverages, primarily in California.” In conclusion Best said: “Negative rating actions could follow if Western General continues its underwriting losses and/or a substantial decline occurs in its risk-adjusted capitalization. Positive rating actions could occur if the company sustains improvement in its underwriting performance while maintaining solid risk-adjusted capitalization.”

A.M. Best Co. has placed under review with positive implications the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Ohio-based German Mutual Insurance Company. “The under review status follows the announcement that German Mutual’s board has approved an affiliation with Goodville Mutual Casualty Company of New Holland, Penna,” Best explained. “The positive implications reflect the expected benefits German Mutual will receive from being part of a larger organization, which is expected to provide reinsurance support, access to operational and managerial resources as well as greater risk management and diversification. Specifically, German Mutual will benefit from improved underwriting leverage derived from the reinsurance pooling agreement between the two companies. The affiliation is subject to approval in the third quarter of 2013 from the Ohio and Pennsylvania Departments of Insurance. German Mutual’s ratings will be removed from under review following the completion of the transaction.”

A.M. Best Co. has downgraded the financial strength rating to ‘A-‘ (Excellent) from ‘A’ (Excellent) and issuer credit rating to “a-” from “a” of Florida-based Accredited Surety and Casualty Company, Inc. (ASC), and has revised its outlook on the ratings to stable from negative. Best said the “rating downgrades reflect ASC’s declining risk-adjusted capital in recent years, driven in part by underwriting and operating results that are not in line with its historical levels, as well as by growth in net written premiums without offsetting growth in surplus in its most recent years.” Best also cited several more positive factors, including “ASC’s positive operating earnings and niche market position within the bail bond business.” Best said the outlook reflects its expectation that the “recent improvement in ASC’s underwriting and operating results will continue, resulting in strengthened risk-adjusted capital levels. The positive rating factors are further supported by the company’s consistent generation of net underwriting profits, driven by low loss experience in bail bonds. While ASC’s underwriting expenses are high relative to its surety composite, they are in-line with those of bail bond specialists, whose commission structures are designed to fund agents’ contractual obligations under the bail bond contracts. Negative rating actions could occur should ASC’s operating performance or risk-adjusted capital levels fall short of Best’s expectations.”

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