Ratings Recap: AXA U.S. Subs, Southern Farm, Iron Horse

June 9, 2014

A.M. Best has revised the issuer credit ratings (ICR) outlook to stable from negative and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and ICRs of “a+” of AXA Insurance Company and AXA Art Insurance Corporation, both of which are domiciled in New York, NY. The outlook for the FSR is stable. Best also affirmed the FSR of ‘B++’ (Good) and the ICR of “bbb” of Delaware-based Coliseum Reinsurance Company, which is in run off. The outlook for these ratings is stable. All of the above companies are U.S. subsidiaries of French insurer AXA S.A. The ratings for AXA Insurance “reflect its strong stand-alone attributes, including its risk-adjusted capitalization, solid underwriting fundamentals and overall operating profitability,” Best said. “The company serves as AXA’s primary U.S. insurer of reverse flow business representing the domestic portion of multinational accounts generated by AXA affiliates. The ratings of AXA Art recognize its strong risk-adjusted capitalization, favorable historical operating results and recognized expertise in the fine arts insurance line. The ratings reflect the implicit and explicit support provided to the company through reinsurance programs with AXA affiliates. Beginning January 1, 2014, coverage for the fine art business is being provided by AXA Insurance. Current exposures will remain under AXA Art to their conclusion. “The report explained that the “outlook for the ratings of AXA Insurance and AXA Art reflect Best’s expectation of continued underwriting discipline, proactive strategic management and ongoing capital support. The outlook also takes into account the resolution of key concerns with AXA’s exposures to uncertainty in the euro zone and the potential impact on the U.S. operations.” Best noted that Coliseum Re remains in run off status. The company continues to maintain adequate capitalization and liquidity relative to its remaining liabilities. In conclusion Best said: “Upward movement on the ratings of AXA Insurance and AXA Art could occur with extended periods of favorable underwriting and overall operating results through market cycles. Negative rating actions could occur with loss of capital position or perceived lessening of support provided by AXA. Separately, Coliseum Re is subject to potential negative rating actions should adverse development occur in the remaining run-off exposures.”

A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit ratings of “aa-” for the members of Southern Farm Bureau Casualty Group (SFB), namely, Southern Farm Bureau Casualty Insurance Company and its wholly owned subsidiary, Louisiana Farm Bureau Casualty Insurance Company. Both companies are headquartered in Ridgeland, Mississippi. The ratings “reflect SFB’s superior capitalization, consistently favorable operating results and positive underwriting performance in the past two years, along with a dominant personal lines market position in its selected operating territories,” Best explained. “These positive rating attributes are derived from management’s adherence to sound operating fundamentals, as demonstrated by SFB’s modest underwriting leverage, consistently favorable loss reserve development, conservative investment profile and its well-managed decentralized operations in six states.” The report also noted that SFB “benefits from its sponsorship by the Farm Bureau Federations in each of the six states that comprise its operating territories, which enhances customer loyalty and affinity. The ratings also acknowledge SFB’s significant market penetration as one of the 50 largest U.S. insurance organizations marketing a full complement of insurance products.” Best said the “stable outlook reflects management’s numerous strategic initiatives to improve underwriting results and capitalization in 2012 and 2013, following heavy periodic weather-related losses in 2011 and prior years. These initiatives include reduction of net exposure, increased premiums and higher retention limits on the so-called ‘loss ratio plans’ through which SFB assumes property risks from three associated Farm Bureau companies all located in the southern United States. Historically, these plans incurred heavy underwriting losses due to widespread tornado and hailstorm activity in this region. Partly as a result of these efforts and the somewhat milder weather patterns of the last two years, SFB has posted combined ratios below 100 and nearly $170 million in surplus gain during this period. SFB also maintains a sustainable competitive advantage due to its extensive market knowledge and efficient cost structure, which is derived from its exclusive agency network.” Partially offsetting these positive rating attributes “is the deterioration in the group’s underwriting performance earlier in the current five-year period, due to both catastrophic weather-related losses as well as unfavorable results in its core automobile book of business, which has tended to underperform,” Best said. “In addition, SFB operates in six states: Arkansas, Colorado, Florida, Louisiana, Mississippi and South Carolina all of which are exposed to frequent and severe weather-related events. However, corrective actions taken by management have resulted in improved operating earnings since mid-2011. While SFB remains well positioned at its current rating level, a return to poor underwriting performance could place greater pressure on the current ratings outlook.”

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a+” of Vermont based captive insurer Iron Horse Insurance Company, both with stable outlooks. The report said 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. 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. 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 also noted that in its role as a captive insurer, “Iron Horse, along with Heddington Insurance Limited [See International], 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.” In conclusion Best said: “Key rating drivers that could lead to a positive outlook or an upgrading of Iron Horse’s ratings are material and sustained improvement of its underwriting performance and long-term maintenance of strong capital levels. Key rating drivers that could lead to a negative outlook or a downgrading of the company’s ratings are significant deterioration in its capital from either claims or investments, a reduced level of capital that does not support the ratings as measured by Best’s Capital Adequacy Ratio (BCAR) or a prolonged decline in underwriting profitability. Iron Horse’s ratings are tied to the rating of Chevron, and a change to Chevron’s rating could result in changes to the captive’s ratings.”

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