Best Rating Updates
Property/Casualty—April—June 2005
MA Status Codes:
D=State of domicile L=Licensed R=Licensed for Reinsurance
A=Approved for Reinsurance
O=Reinsurance (Other)
S=Surplus Lines Writer
F=Authorized under the Risk Retention Act
Rating Action codes:
(+) or (-) Rating upgraded or downgraded
(New) Assigned initial rating
(U) Rating placed under review
(*) Rating was downgraded to E from C– on March 22. Current rating effective 3/25.
Secure Best’s Ratings
A++ and A+ = Superior
A and A- = Excellent
B++ and B+ = Very Good
Vulnerable Best’s Ratings
B and B- = Fair
C++ and C+ = Marginal
C and C- = Week
D = Poor
E =Under Regulatory Supervision F= In Liquidation
S= Rating Suspended
Effective Date-Represents effective date of Rating Action
Rating Modifiers
u - Under Review
pd-Public Data
Affiliation codes
g - Group
p– Pool
s-Syndicate
r - Reinsured
Not Rated Categories (NR)
NR-1 Insufficient Data
NR-2– Insufficient Size and/or Operating Experience
NR-3 Rating Procedure Inapplicable
NR-4 Company Request
NR-5 Not formally Followed
Rating
Action
+
U
+
-
Company
AMB#
Acceptance Insurance Company
02681
ACSTAR Insurance Company
10607
AIG Centennial Insurance Company 00876
AIG Premier Insurance Company 02123
AIU Insurance Company
02389
Alea North America Insurance Co 12467
American Feed Industry Ins Co RRG 10730
American Home Assurance Co
02034
American Internat Specialty Lines 03535
American International Ins Co
03641
American International Pacific
02359
Current
Rating
NR-1
A
A+u
A+u
A+u
A-u
AA+u
A+u
A+u
A+u
Eff.
Date
6/13/05
4/25/05
5/16/05
5/16/05
5/16/05
6/20/05
5/30/05
5/16/05
5/16/05
5/16/05
5/16/05
Prior
Rating
E
AA++u
A++u
A++u
AB++
A++u
A++u
A++u
A++u
MA
Status
S
L
L
L
L
L
F
L
S
L
L
Rating
Action
+
-
-
NEW
U
+
U
+
-
Company
AMB#
American Manufacturers Mutual Ins 02273
American Motorists Ins Co
02274
American Road Insurance Co
00152
Armed Forces Ins. Exchange
03240
Birmingham Fire Ins Co of PA
02349
Chicago Title Insurance Company 04645
CIM Insurance Corporation
02197
Commerce and Industry Ins Co
04000
Countryway Insurance Company
03206
CPA Mutual Ins Co of America RRG 11319
Eastern Casualty Group
18541
Eastern Casualty Insurance Co
01961
Fidelity National Title Ins Co
11977
Granite State Insurance Co
02360
Groveland Mutual Insurance Co
11701
Highlands Insurance Company
02239
Independence Casualty Ins Co
10088
Illinois National Insurance Co
02361
Insurance Co of State of PA
02035
Insurance Corporation of NY
03500
Integon General Ins. Corp.
02459
Integon National Ins Co
02387
Integon Preferred Ins Co
11650
Kemper Casualty Ins Co
12301
Landmark Insurance Co
03756
Lexington Insurance Co
02350
Lumbermens Mutual Casualty Co 02279
Medical Mutual Ins. Co. of ME
01757
Medical Protective Co
00591
MIC General Ins Corp
02669
MIC Property & Casualty Ins Corp 02652
Monumental General Cas. Com.
03694
Motors Insurance Corp
00654
National General Ins Co
03366
National Union Fire Ins Co Pit PA 02351
New Hampshire Ins Co
02363
New South Insurance Co
00698
Omaha Property& Casualty Ins Co 01860
Pennsylvania Lumbermens Mutual 00756
Pharmacists Mutual Ins Co
00320
Putnam Reinsurance Co
03727
Savers P&C Ins. Co.
00524
Security Union Title Ins Co
11908
Senior Citizens Mutual Insurance
10835
Specialty Surplus Insurance Co
12349
Current
Rating
NR-4
NR-4
AAA+u
AAA+u
AB
NR-5
NR-3
AA+u
NR-5
NR-5
A
A+u
A+u
NR-1
AAANR-4
A+u
A+u
NR-4
B++
A-u
AANR-3
AAA+u
A+u
ANR-5
A
A
a+U
B++
AF
NR-4
Eff.
Date
5/9/05
5/9/05
5/16/05
5/30/05
5/16/05
5/30/05
5/16/05
5/16/05
4/4/05
6/27/05
6/20/05
6/20/05
5/30/05
5/16/05
4/4/05
6/20/05
6/6/05
5/16/05
5/16/05
6/13/05
5/16/05
5/16/05
5/16/05
5/9/05
5/16/05
5/16/05
5/9/05
4/4/05
5/16/05
5/16/05
5/16/05
6/13/05
5/16/05
5/16/05
5/16/05
5/16/05
5/16/05
5/23/05
6/6/05
6/27/05
5/16/05
4/25/05
5/30/05
6/27/05
5/9/05
Prior
Rating
D
D
A
A
A++u
A
A
A++u
B++
B+
B++
B++
A
A++u
NR-3
E
A++u
A++u
E
A
A
A
D
A++u
A++u
D
AAA
A
AA
A
A++u
A++u
A
A-u
AA+
a+
B+
A
B-u
D
MA
Status
L
L
L
L
L
L
L
L
L
F
D
D
L
L
D
L
D
L
L
L
L
L
L
L
L
S
L
L
L
L
L
L
L
L
L
L
L
L
L
O
L
L
F
S
Rating
Action
+
+
U
Company
South Carolina Insurance Co
Star Insurance Company
State Farm General Ins Co
Ticor Title Insurance Company
Transatlantic Reinsurance Co
Trenwick America Reinsurance
Ulico Indemnity Company
AMB#
00840
00695
02478
11918
03126
03747
11329
Current
Rating
F
B++
B++
AA+U
NR-3
NR-5
Eff.
Date
4/11/05
4/25/05
6/27/05
5/30/05
5/16/05
6/6/05
5/30/05
Prior
Rating
E
B+
B+
A
A+
NR-4
B-
MA
Status
L
L
L
L
L
A
S
RATIONALE
ACSTAR Insurance Company (A.M. Best #: 10607 NAIC #: 22950)
RATING RATIONALE
Rating Rationale: The rating reflects the company's strong capitalization, solid operating performance,
favorable liquidity, as well as management's strict discipline and noteworthy ability to manage through
market cycles. These positive rating factors are offset by the company's limited product diversification,
elevated loss reserve leverage, continued debt service obligations, stockholder dividends and the
heightened challenges associated with current investment yields. Despite these attenuating factors, the
rating and rating outlook support management's prudent business strategy, ACSTAR's excellent financial
position, favorable earnings prospects, and the reduced financial leverage at ACMAT Corporation (parent
holding company).
Much of ACSTAR's success over the years stems from its parent's long-standing involvement in the
construction industry and the advantages gained by management's expertise. ACSTAR also benefits from
the utilization of construction and underwriting services provided by ACMAT Corporation, a construction
services contractor.
Specializing in surety bonds for the general building, specialty trade, environmental contractors and
asbestos abatement contractors, ACSTAR's product offerings are limited to surety and are highly prone to
competition and market cyclicality in this segment. This is partially offset by the company's considerable
geographic diversity and management's approach to managing market cycles. During the most recent
period of soft market conditions and intense price competition, ACSTAR demonstrated its resiliency and
unwillingness to compete as premium volume declined substantially further corroborating management's
adherence to disciplined underwriting and pricing strategies. However, since 2002, this trend has reversed
as more favorable market conditions have led to vast opportunities at ACSTAR. According to
management, new business prospects via increased submissions remain prevalent.
At year end 2004, ACMAT Corporation maintains financial leverage (total debt & preferred stock to
capital) of 27%, which is less than half the level reported in 1998. Over the years, ACSTAR has been the
principal provider and source of funding that has enabled ACMAT the ability to repay its debt, reduce
interest expense and lower its financial leverage. In addition, debt restructuring in 2002 helped to
significantly lower interest expense and, in turn, accelerated principal payments. Proceeds from various
private debt offerings have been used to facilitate an aggressive share repurchase program. A.M. Best
anticipates that management may continue to repurchase shares but on a far more limited scale over the
near-term. Share repurchases are also expected to be funded through available cash flow at ACMAT Corp.
Best's Rating: A
Outlook: Stable
AIG Centennial Insurance Company (A.M. Best #: 00876 NAIC #: 34789)
AIG Premier Insurance Company (A.M. Best #: 02123 NAIC #: 20796)
RATING RATIONALE
The following text is derived from the report of AIG Personal Lines Pool.
Under Review Rationale: A.M. Best placed the financial strength ratings of member
companies of American International Group, Inc. (NYSE: AIG) under review with
negative implications following their announcement that the Chairman and CEO,
Maurice Greenberg, would retire as CEO, although he remained non-executive
Chairman at the time. The retirement of Mr. Greenberg followed concern over an
increasing number of regulatory inquiries as well as queries from the New York
Attorney General and the SEC. The company additionally announced that the CFO,
Howard Smith, had taken leave and that the filing of AIG's 2004 10-K had been delayed.
Mr. Greenberg was succeeded by Martin J. Sullivan, who had been AIG's vice chairman
and co-chief operating officer. Howard Smith was succeeded by Steven J. Bensinger.
The ratings were lowered on May 1, 2005 and remain under review. There remain a
number of unresolved issues with the potential for continued uncertainty. The ratings
have been placed under review due to the delay in the filing, the premature retirement
of top senior executives, and the numerous regulatory inquiries. A.M. Best believes that
the operating fundamentals within AIG are sound, there is significant management
bench-strength among the leaders of the business segments, and barring any additional
negative reports, the ability to generate historical earnings should continue. The ratings
will remain under review pending A.M. Best's review of the filed 10-K as well as any
further company developments.
Rating Rationale: The rating applies to American International Group Inc. 's (AIG)
twelve member personal lines pool, led by American International Insurance Company
(AIIC), and is based on the consolidation of these entities.
A.M. Best has downgraded the financial strength of most of American International
Group, Inc.'s (AIG) (New York, NY) (NYSE:AIG) wholly-owned insurance subsidiaries
to A+ (Superior) from A++ (Superior) following the company's disclosure on May 1,
2005 of the more complete findings of its extensive internal review. Additionally, the
issuer credit ratings (ICR) assigned to the operating companies on April 6, 2005 have
been downgraded to "aa-" from "aa+". The more pervasive level and extent of the
internal control issues disclosed in the press release were beyond A.M. Best
expectations, although the financial impact to shareholders' equity was not. The
financial strength and ICR ratings remain under review with negative implications. The
under review status was placed on the financial strength ratings of these companies on
March 15 following the company's announcement that Maurice Greenberg stepped
down as CEO and that the filing of AIG's 2004 10K had been delayed.
The extent and number of accounting re-statements, as well as the disregard of
accounting regulations and financial reporting to auditors, regulators and others made
even more apparent in the current press release is the direct cause of the downgrade.
Rating determinations have many components on both a qualitative and quantitative
basis. The downgrade is not based on the absolute level of negative financial affect on
shareholder's equity, which A.M. Best understands and believes is manageable on a
GAAP accounting basis given the still formidable financial strength of AIG. Rather, the
action reflects the fact that such a failure in internal controls, which is expected to result
in an adverse opinion by AIG's auditors, is inconsistent with A.M. Best's highest rating
category. While A.M. Best believes the new management team is actively addressing the
control issues and is instituting a new culture of heeding those controls, absolute faith in
financial reporting, particularly on a statutory basis, cannot be assumed at the present
time. Further, it may take time to re-establish the confidence of the group's constituents.
On Aug. 29, 2003 five personal lines companies were acquired by AIG from GE
Assurance Holdings, Inc. and on Dec. 31, 2004, four of these companies were added to
the AIG Personal Lines Pool. The former GE companies are directly owned by Lexington
Insurance Co., an excess and surplus lines company and member of AIG's Domestic
Brokerage Group, which also provides an unconditional and irrevocable guarantee to
the companies. The rating reflects the advantages of being affiliated with American
International Group, Inc., one of the largest property/casualty insurance organizations
in the U.S. The benefits of AIG ownership is supported by the pool's broad geographic
diversification, low-cost distribution channels and strategic partnering. Since its
formation in 1996, the pool has benefited from the ongoing support and commitment of
its parent through substantial reinsurance linkage, sharing of intellectual resources, the
formation of a dedicated personal lines business unit and increased brand-building
initiatives. American Home Assurance Co., a member of the AIG commercial lines pool,
provides an unconditional and irrevocable guarantee to AIIC. In addition, the pool's
utilization of multiple distribution channels enhances its market penetration and limits
its reliance on any one distribution source. Finally, upgraded technological capabilities
and a rapidly growing direct marketing program continue to enhance its already lowcost expense structure. Offsetting these positive factors are the historical variability in
premium, underwriting income and net income, which have all improved in 2003 and
2004. However, the average combined ratio over the past five years has remained
acceptable at 100.9%. The inclusion of the GE companies acquired by AIG should prove
beneficial going forward as their underwriting performance in 2004 has produced an
underwriting profit. Capitalization is adequate for the rating level, although growth in
premiums and liabilities have outpaced surplus appreciation in recent years.
The pool has historically maintained elevated underwriting and investment leverage
relative to its personal lines peers. However, this aggressive leverage is mitigated by the
financial strength and flexibility of AIG, its strong balance sheet, outstanding
profitability and excellent capital formation capability, and the explicit support provided
to the personal lines pool. Other negative factors include very competitive market
conditions and increasing, but still somewhat modest, brand-name recognition. These
factors are tempered by AIG's expense advantage and its extensive advertising
campaign, effectively enhancing AIG's ability to compete and increasing consumer
awareness.
Best's Rating: A+ pu
Implication: Negative
AIU Insurance Company (A.M. Best #: 02389 NAIC #: 19399)
American Home Assurance Company (A.M. Best #: 02034 NAIC #: 19380)
American Internat Specialty Lines Ins Co (A.M. Best #: 03535 NAIC #: 26883)
American International Insurance Company (A.M. Best #: 03641 NAIC #: 32220)
American International Pacific Ins Co (A.M. Best #: 02359 NAIC #: 23795)
Birmingham Fire Insurance Company of PA (A.M. Best #: 02349 NAIC #: 19402)
Commerce and Industry Insurance Company (A.M. Best #: 04000 NAIC #: 19410)
Granite State Insurance Company (A.M. Best #: 02360 NAIC #: 23809)
Illinois National Insurance Company (A.M. Best #: 02361 NAIC #: 23817)
Insurance Company of State of PA (A.M. Best #: 02035 NAIC #: 19429)
Landmark Insurance Company (A.M. Best #: 03756 NAIC #: 35637)
Lexington Insurance Company (A.M. Best #: 02350 NAIC #: 19437)
National Union Fire Ins Co Pittsburgh PA (A.M. Best #: 02351 NAIC #: 19445)
New Hampshire Insurance Company (A.M. Best #: 02363 NAIC #: 23841)
RATING RATIONALE
Under Review Rationale: A.M. Best placed the financial strength ratings of member
companies of American International Group, Inc. (NYSE: AIG) under review with
negative implications following their announcement that the Chairman and CEO,
Maurice Greenberg, will retire as CEO, although he remains non-executive Chairman.
Mr. Greenberg will be succeeded by Martin J. Sullivan, who had been AIG's vice
chairman and co-chief operating officer. The company additionally announced that the
CFO, Howard Smith, has taken leave and that the filing of AIG's 2004 10-K has been
delayed. Howard Smith will be succeeded by Steven J. Bensinger. The retirement of Mr.
Greenberg follows concern over an increasing number of regulatory inquiries as well as
queries from the New York Attorney General and the SEC.
The vast majority of AIG's major insurance subsidiaries have held financial strength
ratings of A++, A.M. Best's highest rating, for many years. There remain a number of
unresolved issues with the potential for continued uncertainty. The ratings have been
placed under review due to the delay in the filing, the premature retirement of two top
senior executives, and the numerous regulatory inquiries. A.M. Best believes that the
operating fundamentals within AIG are sound, there is significant management benchstrength among the leaders of the business segments, and barring any additional
negative reports, the ability to generate historical earnings should continue. The ratings
will remain under review pending A.M. Best's review of the filed 10-K as well as any
further company developments.
The following text is derived from the report of American International Group.
Rating Rationale: The rating of the eleven members of the American International
Group (AIG) Commercial Lines Pool, led by National Union Fire Insurance Company of
Pittsburgh, Pa., and certain strategic affiliates is based on the consolidated operating
performance of AIG's domestic property / casualty insurance group, which includes the
operating results of the following companies: the AIG Commercial Pool; the AIG
Personal Lines Pool; the Lexington Insurance Pool; the Hartford Steam Boiler Group;
majority-owned Transatlantic Holdings, Inc.; and majority-owned 21st Century
Industries. Each of the aforementioned Pools/Groups are separately rated.
A.M. Best downgraded the financial strength of most of American International Group,
Inc.'s (AIG) (New York, NY) (NYSE:AIG) wholly-owned insurance subsidiaries to A+
(Superior) from A++ (Superior) following the company's disclosure on May 1, 2005 of
the more complete findings of its extensive internal review. Additionally, the issuer
credit ratings (ICR) assigned to the operating companies on April 6, 2005 have been
downgraded to "aa-" from "aa+". The more pervasive level and extent of the internal
control issues disclosed in the press release were beyond A.M. Best expectations,
although the financial impact to shareholders' equity was not. The financial strength and
ICR ratings remain under review with negative implications. The under review status
was placed on the financial strength ratings of these companies on March 15 following
the company's announcement that Maurice Greenberg stepped down as CEO and that
the filing of AIG's 2004 10K had been delayed.
The extent and number of accounting re-statements, as well as the disregard of
accounting regulations and financial reporting to auditors, regulators and others made
even more apparent in the current press release is the direct cause of the downgrade.
Rating determinations have many components on both a qualitative and quantitative
basis. The downgrade is not based on the absolute level of negative financial affect on
shareholder's equity, which A.M. Best understands and believes is manageable on a
GAAP accounting basis given the still formidable financial strength of AIG. Rather, the
action reflects the fact that such a failure in internal controls, which is expected to result
in an adverse opinion by AIG's auditors, is inconsistent with A.M. Best's highest rating
category. While the new management team is actively addressing the control issues and
is instituting a new culture of heeding those controls at the highest levels, absolute faith
in financial reporting, particularly on a statutory basis, cannot be assumed at the present
time. Further, it may take time to re-establish the confidence of the group's constituents.
The rating continues to reflect AIG's positive operating performance, specialty
underwriting focus, and recognized global leadership position within its select and
highly specialized market segments, particularly management liability (including
directors and officers liability), commercial umbrella, environmental coverages and
excess and surplus lines. The nation's largest underwriters of commercial and industrial
coverages, AIG is widely recognized in the broker community for its unique and highly
innovative product offerings, substantial risk management and service capabilities, as
well as its ability to provide high coverage limits and broad global capacity. AIG also
benefits from its profit center approach and strong broker relationships. Through its
extensive overseas network and full array of commercial products, AIG can
accommodate most of its clients' global insurance needs. Finally, the group maintains a
high-quality investment portfolio and a conservative net limit risk profile that minimizes
AIG's exposure to potentially large losses.
Partially offsetting these strengths is the uncertainty associated with AIG's ongoing
exposure to asbestos and environmental (A&E) liabilities. Despite these uncertainties,
A.M. Best believes that AIG's exposure to A&E claims is very manageable given its
relatively lower market share of exposed policies, greater utilization of reinsurance and
extremely strong earnings generation. The group also maintains a sizeable amount of
stacked capital with affiliated investments equal to approximately one-third of its capital
base.
A.M. Best believes AIG's long-term growth and profitability prospects continue to be
favorable given its quality management operating teams, franchise value, product
innovation, specialized underwriting expertise and use of high-quality reinsurance.
Financial flexibility and access to capital markets is afforded by its ultimate parent-American International Group, Inc., a globally diversified leader in the insurance and
financial services industries.
Best's Rating: A+ pu
Best's Rating: A+ gu
Implication: Negative
Implication: Negative
American Feed Industry Ins Co RRG , Inc (A.M. Best #: 10730 NAIC #: 44202)
RATING RATIONALE
Rating Rationale: The rating reflects American Feed Industry Insurance Company's
(AFIIC) strong capitalization, improved operating performance, historically low loss
ratios, and a high member retention rate. The rating further reflects the company's
proven underwriting expertise in its niche marketplace. Partially offsetting these
positive factors, is the fluctuation in premium volume, variability in operating results,
and a gradual decline in reserve redundancies over the past five years. Management has
taken measures to exit all lines of business not related to liability coverages for the feed
industry in an effort to generate increased profitability and operating stability.
The company had made some efforts in the past to expand its offerings, however, at this
point, management is focused on retaining risks on its core businesses, which are
primary and excess product and general liability coverage for the feed industry. On June
30, 2003 American Feed sold its 100% ownership stake in American Agri-Business
Insurance Company to ARMTech Holdings, Inc. Current market conditions have
afforded American Feed Industry Insurance Company continued growth within their
niche. It has maintained consistent surplus levels over the last five years and adheres to
a very conservative investment strategy. The management team has numerous years of
insurance industry experience and is highly respected in the feed industry.
Best's Rating: A-
Outlook: Stable
American Road Insurance Company (A.M. Best #: 00152 NAIC #: 19631)
RATING RATIONALE
Rating Rationale: The rating recognizes TARIC'S excellent capitalization level, history
of positive operating performance, conservative reserve practices and effective
management of exposures. Over the past five years, return on surplus has averaged
19.3%, while capital and surplus levels have grown at a compound rate of 47.0% through
the accumulation of net profits. Partially offsetting these positive rating factors is A.M.
Best's concern regarding the operations and profitability of TARIC's ultimate parent,
Ford Motor Company, and its potential impact on the operations of its captive. An
additional offsetting rating factor is the moderate amount of credit risk assumed by
TARIC with placement of reinsurance to an offshore affiliate. Although its ceded
leverage is well above that of its peer companies, nearly all of its ceded reserves are
backed by a trust account with TARIC named as the sole beneficiary.
Best's Rating: A-
Outlook: Negative
Armed Forces Insurance Exchange (A.M. Best #: 03240 NAIC #: 41459)
RATING RATIONALE
Rating Rationale: The rating reflects Armed Forces Insurance Exchange's (AFIE)
adequate capitalization, solid balance sheet liquidity and long standing history of
providing homeowners and inland marine insurance to the preferred-risk segment of
the military market. Partially offsetting the positive rating factors is a continued
deterioration in operating performance, geographic exposure concentration and elevated
expense ratios. Despite management's detailed strategic plan and implementation of
corrective actions to improve profitability and curtail the loss of surplus, the outcome of
these measures remains uncertain. Accordingly, over the long-term a large degree of
uncertainty exists with regards to the stability of current risk-adjusted capitalization and
the impact that catastrophe events will have on projected performance.
Although surplus has continued to decline, the company's capitalization remains
adequate as reflected in its conservative leverage position. The Exchange maintains a
competitive advantage due to its high business retention and direct response
distribution system that results in minimal commission costs. The rating further reflects
AFIE's considerable reinsurance protection with high-quality carriers which reduces its
relatively high gross probable maximum loss from a severe event to a manageable level.
Offsetting these positive factors is AFIE's continued poor operating performance and
inherent exposure to frequent and severe weather related events. During the latest five
year period, operating returns steadily declined due to severe weather related events,
increased mold claims, overall historical rate inadequacy and costs incurred for system
development. As a result, five year average pre-tax operating returns on revenue and
equity are negative and compare unfavorably to the property lines industry composite.
In addition, AFIE's earnings are impacted by its geographical exposure concentration
with subsequent susceptibility to weather-related events, as most military
establishments are located in coastal regions. The company is further challenged by a
shrinking target market associated with the downsizing of the country's active military
force and inability to significantly change its geographic profile due to its specialized
market niche. In response, the company has implemented aggressive corrective actions
which include significant rate increases, stricter underwriting guidelines, improved
technology capabilities and an expansion of AFIE's eligibility criteria to include certain
civilian employees of the Department of Defense. In an attempt to offset its catastrophe
exposure, the company is focusing on products with less catastrophe exposure such as
inland marine and personal auto, in conjunction with spreading its risk to non-coastal
military installations.
Best's Rating: A-
Outlook: Negative
Chicago Title Insurance Company (A.M. Best #: 04645 NAIC #: 50229)
Fidelity National Title Insurance Co (A.M. Best #: 11977 NAIC #: 51586)
Security Union Title Insurance Company (A.M. Best #: 11908 NAIC #: 50857)
Ticor Title Insurance Company (A.M. Best #: 11918 NAIC #: 50067)
RATING RATIONALE
The following text is derived from the report of Fidelity National Financial Inc.
Rating Rationale: This rating reflects the group's solid capitalization, favorable
operating results and strong market profile as the largest title insurance group in the
United States. These positive rating factors are somewhat offset by the group's challenge
to manage future economic cycles, inherent risks with managing significant premium
growth in recent years, and increased debt leverage at the parent holding company on a
consolidated basis. The group's rating outlook is based on Fidelity's solid capitalization,
favorable operating earnings and leading market position.
The group's positive rating factors are derived from the franchise value of their leading
brands Fidelity National Title Insurance Company (FNTIC) and Chicago Title Insurance
Company (CTIC). The CTIC business complements FNTIC's predominantly residential
title book of business with commercial title products. In addition, management's
disciplined approach focusing on underwriting while minimizing revenue and earnings
volatility through cost mitigation efforts and geographic and service diversification has
allowed the group to realize excellent operating results in recent years.
Negative rating factors include the susceptibility of the group's underwriting revenue
and profitability to fluctuating interest rate levels, and a changing legal and regulatory
environment which could potentially have a generally negative impact on the title
industry. The group has inherent market and execution risks associated with managing
significant premium growth through acquisitions and organic growth related to the
surge in refinancing activity in recent years, along with rapidly appreciating real estate
markets. Additionally, debt/capital ratios at the parent, FNF, increased significantly in
2005 primarily due to the payment of an extraordinary shareholder dividend. However,
FNF has shown good experience in managing debt. Additionally, the group has an
excellent record of managing economic cycles as evidenced by the favorable operating
results over the last five years.
Best's Rating: A- g
Outlook: Stable
CIM Insurance Corporation (A.M. Best #: 02197 NAIC #: 22004)
Integon General Insurance Corporation (A.M. Best #: 02459 NAIC #: 22780)
Integon National Insurance Company (A.M. Best #: 02387 NAIC #: 29742)
Integon Preferred Insurance Company (A.M. Best #: 11650 NAIC #: 31488)
MIC General Insurance Corporation (A.M. Best #: 02669 NAIC #: 38660)
MIC Property and Casualty Insurance Corp (A.M. Best #: 02652 NAIC #: 38601)
Motors Insurance Corporation (A.M. Best #: 00654 NAIC #: 22012)
National General Insurance Company (A.M. Best #: 03366 NAIC #: 23728)
New South Insurance Company (A.M. Best #: 00698 NAIC #: 12130)
RATING RATIONALE
The following text is derived from the report of GMAC Insurance Group.
Rating Rationale: The rating reflects GMAC Insurance Group's (GMACI) excellent
stand-alone capitalization, consistently solid operating results, well-established market
presence as one of the top 35 property/casualty insurers in the United States and
leading position as a provider of extended service contracts. As a member of General
Motors (GM), GMACI's positive rating factors are somewhat offset by the significant
challenges and intense competitive environment the ultimate parent company faces in
the automobile industry. Additional negative factors at GM include its high fixed cost
structure, large unfunded retiree medical obligations, as well as its pension and
healthcare burden. The rating outlook is based on the accelerating deterioration of GM's
financial performance and the potential burden on the insurance operations.
GMACI's positive rating attributes are derived from management's focused operating
strategy, extensive product knowledge, diversified product offerings and multiple
distribution channels. Capitalization is reflective of reasonable underwriting leverage
and nominal exposure to a catastrophic event. The group has consistently generated
capital through operating earnings reflective of disciplined underwriting, an efficient
expense structure and a steady stream of investment income. Through the affiliation
with General Motors, the group benefits from the extensive penetration of GM
dealerships, as well as GMAC's brand name recognition, widespread marketing
network and direct sales support. In addition, this rating reflects the group's
diversification outside traditional GM-related businesses, particularly its wellestablished presence in the non-standard automobile market through the GMAC
personal lines business.
Additional offsetting rating factors include the group's elevated investment leverage due
to its significant common stock exposure, and its recent adverse loss reserve
development partially attributable to foreign currency movements, rising loss costs and
weather-related events. Prior to 2003, surplus losses were driven by the unfavorable
performance of the equity portfolio and parental dividends. Although GMACI's
common stock portfolio has rebounded in recent years, investment leverage remains
high with common stocks comprising approximately 95% of surplus at year-end 2004.
Further, a portion of the group's business, extended warranty and non-standard
automobile, is exposed to downturns in economic conditions.
This rating applies to Motors Insurance Corporation, its fourteen reinsured subsidiaries
and affiliates, and is based on the consolidated financial results of these companies.
Best's Rating: A- r
Outlook: Negative
Countryway Insurance Company (A.M. Best #: 03206 NAIC #: 10022)
RATING RATIONALE
Rating Rationale: The rating reflects the company's solid capitalization, consistent improvement in the
underwriting results, and conservative investment income strategy. The company's 5-year overall earnings
rate of return ratios exceeded the industry's private passenger auto and homeowners composite averages
and the company's underwriting results, as measured by the combined ratio, also compared favorably.
These positive rating factors are partially offset by the company's elevated underwriting leverage, above
average expense ratio, and recent adverse loss reserve development. The expense ratio has gradually
declined in recent years, however. The rating outlook is based on the company's solid capital position, the
expectation of continued favorable earnings, and operating synergies with its parent company, United
Farm Family Mutual.
The company's positive rating factors are derived from its local market knowledge and competitive
position as a leading writer of farm-related businesses in the Northeast. Operating profits have been
posted in each of the last five years, driven by solid investment income generation. In addition, the
company benefits from the operational support of its parent.
Negative rating factors include underwriting losses, which were adversely influenced by claim frequency
and severe weather activity, and a high expense ratio. However, the company has emphasized the
application of tight underwriting standards and is utilizing the expertise of its parent's actuarial
department to ensure rate adequacy. Consequently, with the close attention given by management coupled
with firm market conditions, underwriting performance improved in recent years. Additionally, the
company's recent expense position has benefited from cost saving strategies with its parent.
Best's Rating: A-
CPA Mutual Insurance Co of America RRG (A.M. Best #: 11319 NAIC #: 10164)
RATING RATIONALE
Rating Rationale: This rating reflects the company's strained level of risk-adjusted
capitalization due to adverse loss reserve development, the deterioration in
policyholders' surplus and the significant dependence on reinsurance. The rating also
recognizes the company's volatile operating results, high common stock leverage, and
concentration of risk as the company provides professional liability insurance for
certified public accountants. Partially offsetting these negative factors are the benefits to
the company derived from its relationship with CPAmerica International, one of the
largest networks of accounting firms in the United States, particularly through
geographic and name recognition among its targeted sector of small sized firms. Also,
the variety of services provided through its longstanding association with CPAmerica
and management's objective of providing low cost coverage for its members has enabled
the company to maintain high policyholder retention. The rating also acknowledges the
measures designed to improve operating performance including the adherence to strict
underwriting guidelines and risk management initiatives, non-renewal of poor
Outlook: Stable
performing accounts, a refocus on its niche of smaller sized accounts, and increased rate
structure including the elimination of several credits. The outlook is based on the
continued uncertainty regarding loss reserve adequacy and future operating
performance.
Best's Rating: B
Outlook: Negative
Independence Casualty Insurance Co (A.M. Best #: 10088 NAIC #: 11984)
RATING RATIONALE
The following text is derived from the report of Charter Insurance Group.
Rating Rationale: This rating is based on the consolidated results of Atlantic Charter Insurance Company
(Atlantic) and its 100% reinsured affiliates, Endeavour Insurance Company (Endeavour) and Independence
Casualty Insurance Company (Independence). The rating reflects the group's excellent operating results
and strong capitalization while recognizing management's disciplined underwriting approach and long
standing expertise in the Massachusetts workers' compensation marketplace. Offsetting these factors is the
group's vulnerability, as a single state mono-line insurer, to adverse developments in the economic and
regulatory environment. The outlook is supported by the group's track record of consistently strong
operating income, favorable underwriting results and solid capital position.
The rating also considers the benefits associated with Charter's proactive loss control and claims
management program, which better aligns Charter with its clients, strengthening business relationships
while affording better overall underwriting results. Over the past fourteen years Charter has maintained its
market share in the field of long-term care, and has successfully expanded its focus to other markets
particularly, hospitals, auto-dealers, plastic manufacturers, precision equipment manufacturers, tool and
die, clothing manufacturers, high-tech firms and home health care businesses. These other classes now
account for more than 75% of the total book of business. The group has also positioned itself for further
growth through the development of strong broker relationships and has chosen to participate in the Mass
voluntary direct assignment carrier (VDAC) market in lieu of the assigned risk pool. Finally, the group has
also gained additional underwriting flexibility through its formation of Endeavour and Independence,
which allows the group rate flexibility when writing business.
Best's Rating: A r
Outlook: Stable
Medical Mutual Insurance Company of ME (A.M. Best #: 01757 NAIC #: 36277)
RATING RATIONALE
Rating Rationale: The rating reflects Medical Mutual Insurance Company of Maine's (MMIC) adequate
risk-adjusted capitalization, leadership position within the medical professional liability markets in which
it operates and its high policyholder retention rate. The rating also recognizes the actions taken by
management to restore operating profitability through continued premium rate increases, scheduled credit
and discount decreases. These positive rating factors are offset by the recent deterioration in operating
profitability and risk-adjusted capitalization, driven by continued adverse loss reserve development
primarily in the most recent accident years, and surplus' ongoing susceptibility to fluctuating equity
values. The rating outlook will remain until reserve development stabilizes and operating performance
improves and is sustained over the near-term.
Best's Rating: B++
Outlook: Negative
Pennsylvania Lumbermens Mutual Ins Co (A.M. Best #: 00756 NAIC #: 14974)
RATING RATIONALE
Rating Rationale: The rating reflects Pennsylvania Lumbermens Mutual Insurance Company's (PLM) very
strong capitalization, favorable operating results, and the company's established market presence
providing multiple line coverages to the lumber, woodworking, and building material industries.
Somewhat offsetting these strengths are the company's unsatisfactory operating results reported in soft
market conditions and relatively elevated common stock leverage. The outlook reflects the group's solid
balance sheet strength and good position within its niche markets.
Driven by management's corrective actions that were implemented several years ago and benefits realized
from hard market conditions, the company's overall operating performance has improved in consecutive
years since 2000. The company has aggressively focused on garnering adequate rate per exposure unit by
underwriting on an individual account basis. Although PLM's operating results have rebounded
noticeably, operating results in years prior to 2001 trailed industry averages. Impacting PLM's
underwriting results in prior years were extremely competitive market conditions, frequent and severe
weather related losses, large fire losses, and state mandated rate decreases in its workers' compensation
line of business. Additionally affecting the company's operating results in 2000 and 2001 were losses
incurred in non-core businesses such as participation in external reinsurance programs (now discontinued)
and involuntary FAIR (Fair Access to Insurance Requirements) plans. Absent of these one-time charges, the
improvement in the company's results is magnified in these respective years. While A.M. Best recognizes
that PLM's improved underwriting results are in large part a function of the initiatives deployed by
management during the last several years, there are concerns that underwriting results could be impacted
in the intermediate-term based on the historically susceptible fundamentals of the company's specialty
market niche during soft market conditions.
Best's Rating: A
Pharmacists Mutual Insurance Company (A.M. Best #: 00320 NAIC #: 13714)
RATING RATIONALE
Rating Rationale: The rating reflects the company's solid capitalization, historically
favorable underwriting results, efficient direct marketing strategy and the benefits
derived from its enduring reputation and leadership position as the largest independent
insurer of pharmacists in the United States. Offsetting these positive rating factors is the
company's substantial adverse prior year loss reserve development over the past five
years, above average growth, below-average historical operating returns and the recent
variability in underwriting and operating results. On the other hand, Pharmacists
Mutual should benefit from several actions taken by management in 2004 related to the
reorganization of the company's claims operations, which could ultimately lead to more
adequate loss reserves going forward. The company's rating outlook is based on the
stabilization of reserves and the benefits to be derived from these corrective actions.
Pharmacists Mutual has specialized in providing commercial and professional liability
coverage for pharmacies and pharmacy owners, primarily in the central region of the
United States, for almost 100 years. Its positive rating attributes are derived from the
company's niche underwriting expertise, conservative underwriting and investment
philosophies and excellent geographic diversification. Consistently high customer
Outlook: Stable
retention ratios in recent years further demonstrates Pharmacists' solid standing within
this specialty market. The company also benefits from overall market hardening and the
company's ability to increase rates, apply more stringent terms and conditions in
conjunction with lowering policyholder dividends. The company's solid capitalization
reflects its low, although increased, underwriting leverage, high-quality bond portfolio
and utilization of highly-rated reinsurers. In addition, the company benefits from its
successful direct marketing strategy that has created built-in expense advantages.
Much of the adverse loss reserve development reported in recent years has largely
occurred within its commercial multi-peril, workers' compensation and personal auto
liability lines. In addition, underwriting results also have been adversely affected by the
company's expansion in its home health care target market, which has produced loss
ratios much higher than its home medical equipment and core pharmacy markets. The
company's weaker than historical loss experience has also led to higher reinsurance costs
and the need to pursue more adequate premium rates.
Furthermore, in 2003, the company settled a highly-publicized, class action lawsuit (the
Courtney case) involving an insured who intentionally diluted various compounded
drugs over a number of years. Due to the unusual nature of this lawsuit, the settlement
amount of $6 million (net of reinsurance) was accounted for as a write-in item and was
not included in underwriting results reported in 2003.
Best's Rating: A
Outlook: Stable
Savers P & C Ins Co (A.M. Best #: 00524 NAIC #: 16551)
Star Insurance Company (A.M. Best #: 00695 NAIC #: 18023)
RATING RATIONALE
The following text is derived from the report of Meadowbrook Insurance Group.
Rating Rationale: This rating is based upon the consolidated results of Meadowbrook Insurance Group
and applies to its domestic property and casualty companies: Star Insurance Company, Savers Property
and Casualty Insurance Company and Williamsburg National Insurance Company. The rating reflects
Meadowbrook's solid capitalization, continued underwriting and operating improvements through 2004,
and the group's recognized expertise in the alternative risk market and program business arena. The rating
also recognizes the significant improvement in 2004, Meadowbrook's earnings prospects in 2005 and the
lessened reserve development from prior year reserves. The rating also takes into consideration the
manageable level of holding company financial leverage at the group's parent, Meadowbrook Insurance
Group, Inc. These positive factors are offset by the poor operating results reported by Meadowbrook prior
to 2002, its consequential impact on capitalization and leverage during that period and the fact that all of
Meadowbrook's capital formation in recent years was derived from external capital raising, versus
organically via retained earnings. There is also some uncertainty regarding the long-term profit outlook for
the new business written, including business written as insurance programs rather than managed
programs. The rating outlook reflects A.M. Best's current views that management has effectively identified
and developed plans which has enabled the group to progress to levels reported over the past two years.
A.M. Best will continue to closely monitor the results of the operating companies, scrutinizing the
continued enhancement of operational profitability and the sustainability of those results.
Over the years, capitalization has been bolstered by Meadowbrook's successful offering of common stock
in 2002, the issuance of trust preferred securities, and healthy operating earnings as reported in 2004. This
was only the second time since the end of 1998 that net income was generated. Much of the capital raised
in recent years was, in large part, to support growth efforts and to bolster the balance sheet of the group's
lead company, Star Insurance Company. The group's ability to fund parent company debt obligations
through the income of its non-regulated subsidiaries, including income generated from outside and
intercompany management fees, enhances the overall financial condition of the parent company and
relieves pressure that might otherwise be borne by its insurance subsidiaries. Having this flexibility allows
for greater potential capital formation at the subsidiary insurance company level. Additionally, the
replacement of the group's credit facility facilitated the pay off of the group's former term loan while the
new revolving line of credit adds additional flexibility for short-term working capital needs.
Meadowbrook reported improved calendar year underwriting results for the fourth straight year.
Management attributes much of this to numerous underwriting and operational initiatives introduced
since 2000. Among these initiatives were increased rate levels, the discontinuation of poorly performing
programs, a focus on previously managed (versus new) programs that have long-term histories of
generating underwriting profits. Over the years, management discontinued approximately 20 select
programs which accounted for a disproportionate share of incurred losses. Further, corrective actions have
been aimed at stabilizing loss reserve development. This initiative includes positioning the group's loss
reserves nearer to the high-end of the actuarial range.
Meadowbrook Insurance Group maintains a strong market position as a provider of risk management
services to industry associations, affinity groups and individual businesses. The group continues to benefit
from improved market conditions and reduced competition as several players in this arena have exited the
market - either voluntarily or involuntarily. The rating also acknowledges the prudent risk selection
process and effective implementation of loss control practices, which have enabled the group to generate
strong comparative results on continuing business while maintaining a high retention percentage.
A.M. Best also recognizes that a portion of the significant prior loss reserve increases represented a
material change in management's reserving philosophy. While there have been significant measures taken
to improve all aspects of the Group's operations, it is recognized that these initiatives will continue to
gradually impact results over the near term to the extent that underwriting profits are generated, which
has not occurred recently on a calendar year basis. The improved underwriting results over the past three
calendar years have been somewhat tempered by areas of additional reserve increases intended to address
prior accident years on isolated discontinued and terminated programs. It is anticipated that further
stabilization on the underwriting side will lead to profitability that further enhances operating
performance on a consistent basis. However, despite the underwriting losses in 2003 and 2004,
management feels that future adverse development has been effectively contained. A.M. Best continues to
view the reserve position with some uncertainty going forward, particularly because a portion of the
continued, though moderating, adverse development over the last two years that was attributable to some
of the discontinued programs. Nevertheless, A.M. Best believes the recent improvements in the group's
financial and operating parameters represent a stabilization of the group's financial condition.
Best's Rating: B++g
Outlook: Stable
Senior Citizens Mutual Insurance Co (A.M. Best #: 10835 NAIC #: 44172)
RATING RATIONALE
Rating Rationale: On June 2, 2005, the Second Judicial Circuit Court in Leon County,
Florida, signed the Consent Order placing Senior Citizens Mutual Insurance Company
("Senior Citizens") in receivership for purposes of liquidation. Senior Citizens consented
to the appointment of the Florida Department of Financial Services as the court
appointed Receiver of Senior Citizens. Senior Citizens previously consented to be placed
into rehabilitation on May 9, 2005; however, the Receiver determined that a successful
rehabilitation of the company was not possible.
Senior Citizens is a Florida domestic insurer that is licensed to write business in 20
states. The company specializes in other liability and commercial multi-peril coverage
for senior citizens' housing communities and had approximately 15 policies in force as of
May 2005. The company also reinsures approximately 600 policies written directly by
two other unaffiliated companies. Senior Citizens' home office is located in Miami,
Florida.
In accordance with the terms of the Liquidation Order, all policies are cancelled 11:59
p.m. on July 1, 2005, unless otherwise cancelled earlier in the normal course of business.
State Farm General Insurance Company (A.M. Best #: 02478 NAIC #: 25151)
RATING RATIONALE
Rating Rationale: This rating reflects State Farm General's role as a member of the State
Farm Group, parental support and improved operating results in recent years. Partially
offsetting these factors has been the company's historically lackluster operating
performance and geographic business concentration in California, which exposes its
operating results to potential catastrophic loss accumulation, regulatory mandates and
competitive market pressures. Nonetheless, the rating outlook is based on the improved
operating results and favorable stand-alone risk-adjusted capitalization.
State Farm General's operating results improved recently over prior years due to
tightened underwriting guidelines and pricing increases associated with firm market
conditions. As a result of the company's improved operating performance and strong
investment income, capitalization improved in 2003 and 2004. The parent company,
State Farm Mutual Automobile Insurance Company, displayed its commitment to this
separately capitalized California entity by funding a $200 million surplus note issued by
State Farm General during 2002. This parental support followed the deterioration in
surplus in 2000 and 2001 driven by increased loss severity. In addition, the parent
provides significant catastrophe reinsurance protection.
Partially offsetting these factors has been the company's historically lackluster operating
performance and geographic business concentration in California, which exposes its
operating results to potential catastrophic loss accumulation, regulatory mandates and
competitive market pressures. Operating performance prior to 2003 was unfavorable
due to increasing loss costs and a corresponding increase in average severity coupled
with market share pricing decisions. To a smaller extent, results also reflected the impact
of mold related losses due to increased public awareness. As a result, State Farm General
posted significant operating losses with sizeable surplus declines and a corresponding
increase in premium leverage. With a predominant property book of business, State
Farm General's gross exposure to a 250-year earthquake is in excess of its capitalization
with a net probable maximum loss representing approximately 15% of risk-adjusted
surplus.
Best's Rating: B++
Outlook: Stable