Moody's affirmed the ratings of Arrowhead General Insurance Agency Inc., reflecting the company's expertise in distributing specialty property/casualty insurance products, its strong carrier relationships and its consistent operating margins. These strengths are tempered by the company's significant debt burden and restrictive financial covenants as well as its modest size relative to the largest national brokers, Moody's says. The rating outlook remains stable.
"Arrowhead has returned to organic growth in revenues and EBITDA during 2010 following various restructuring actions taken in 2009," says Bruce Ballentine, Moody's lead analyst for Arrowhead. "The favorable trend in EBITDA should help the company to renegotiate or refinance its maturing credit facilities."
As of Sept. 30, 2010, Arrowhead's financing arrangement consisted of a $10 million first-lien revolver maturing in August 2011 (undrawn, rated B3), a $110 million first-lien term loan due in September 2012 (rated B3) and a $41 million second-lien term loan due in February 2013 (rated Caa1). Moody's expects the company to complete a refinancing during the first half of 2011.
Moody's assigned a Aa2 rating to $1.5 billion of senior unsecured notes being issued by Berkshire Hathaway Finance Corp. (BHFC) in three tranches: $375 million of three-year fixed-rate notes, $375 million of three-year floating-rate notes and $750 million of 10-year fixed-rate notes. The senior unsecured notes will be unconditionally and irrevocably guaranteed by Berkshire Hathaway Inc. (Berkshire -- long-term issuer rating of Aa2). The notes are being issued off Berkshire's "well-known seasoned issuer" shelf registration. Net proceeds are expected to be used to repay a like amount of BHFC notes maturing in January 2011. The rating outlook for Berkshire and BHFC is stable.
BHFC, part of Berkshire's finance and financial products segment, provides financing to Vanderbilt Mortgage and Finance Inc. (Vanderbilt), a wholly owned subsidiary of Clayton Homes Inc. (Clayton), which is indirectly wholly owned by Berkshire. Vanderbilt, in turn, provides installment financing to certain purchasers of homes sold by Clayton and also makes bulk purchases of manufactured housing loans from banks and other lenders. BHFC accounted for about 20% of Berkshire's consolidated debt outstanding as of Sept. 30, 2010. Berkshire guarantees all of BHFC’s borrowings.
"Berkshire generated strong earnings through the first nine months of 2010 from its wholly owned businesses and from several high-return preferred stock and debt securities purchased during the depths of the financial crisis," said Bruce Ballentine, Moody's lead analyst for Berkshire.
Berkshire's ratings reflect its strong market presence in its principal (re)insurance operations, the diversification of its earnings in both regulated and non-regulated businesses, and its exceptionally strong balance sheet, according to Moody's. These strengths are tempered by potential earnings and capital volatility within the major
(re)insurance operations related to large and concentrated stock investments as well as large individual underwriting transactions. In addition, several of Berkshire's non-insurance businesses face earnings pressure from the weak US economy, particularly businesses that are closely tied to the housing market.
A.M. Best Europe – Rating Services Limited assigned a financial strength rating of A (excellent) and an issuer credit rating (ICR) of “a” to Catlin Re Switzerland Ltd (Catlin Re) (Zurich), the newly formed wholly owned subsidiary of Catlin Group Limited (CGL) (Bermuda), the ultimate parent company of the Catlin group.
The ratings of Catlin Re reflect its strategic importance to the Catlin group as the provider of significant intra-group reinsurance protection and as the group’s platform for expansion of its reinsurance business in Europe, the rating agency says. The company will underwrite European property and specialty business, as well as a portfolio of global trade credit surety and political reinsurance. In addition, reinsurance of other group subsidiaries will be underwritten through the company’s Bermuda-based branch office from 2011. This internal business is currently written by Catlin Re’s immediate parent, Catlin Insurance Co. Ltd. (Bermuda), and is expected to account for approximately 95% of the company’s gross premium income during its first year of operation.
A.M. Best expects Catlin Re’s stand-alone risk-adjusted capitalization to be maintained at a strong level based on growth and performance forecasts. The company’s initial capital of approximately USD 1.1 billion represents over a third of the group’s consolidated shareholders’ funds (USD 3.2 billion as at June 2010).
A.M. Best Co. has placed under review with negative implications the financial strength rating (FSR) of A- (excellent) and issuer credit ratings (ICR) of “a-” of Clarendon Insurance Group (Clarendon) and its members.
These rating actions follow the announcement that Clarendon’s ultimate parent, Hannover Rueckversicherung AG (Hannover Re), has reached an agreement on the sale of all the operating companies of Clarendon Insurance Group Inc. to Enstar Group Limited (Enstar). Enstar specializes in the acquisition and management of insurance and reinsurance companies that are in run-off. The close of the transaction is anticipated to occur during the second quarter of 2011 and is still subject to customary regulatory approvals.
The under review status with negative implications reflects the uncertainties associated with this transaction and any changes that may be brought on by changes in ownership.
The FSR of A- (excellent) and ICRs of “a-” have been placed under review with negative implications for Clarendon Insurance Group and its following members:
- Clarendon National Insurance Co.
- Clarendon America Insurance Co.
- Clarendon Select Insurance Co.
- Harbor Specialty Insurance Co.
A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (excellent) and issuer credit ratings (ICR) of “a-” of FPIC Insurance Group (FPIC) and its members. A.M. Best also affirmed the ICR of “bbb-” of FPIC Insurance Group Inc. Concurrently, A.M. Best has affirmed the FSR of A- (excellent) and ICR of “a-” of FPIC Insurance Group Inc.’s separately rated subsidiary, Advocate, MD Insurance of the Southwest Inc. The outlook for all ratings is stable.
The ratings of FPIC reflect its excellent risk-adjusted capitalization, strong operating performance and high policyholder retention levels, the agency says. These strengths are derived from management’s long-standing localized market knowledge and extensive understanding of the Florida regulatory and judicial environment. The ratings also recognize the financial flexibility that exists at FPIC Insurance Group Inc., which continues to maintain a modest financial leverage of 13.8% (total debt/total capital as of Sept. 30, 2010) and strong interest coverage.
The positive rating factors are partially offset by the inherent challenges associated with FPIC’s status as a monoline insurer in the highly cyclical medical professional liability (MPL) line of insurance, A.M. Best says. As such, the outlook is contingent upon FPIC’s cycle management capabilities and its pricing discipline.
The ratings of Advocate, MD reflect its strong risk-adjusted capital position, favorable operating performance since its formation in 2004 and high policyholder retention levels. The ratings also consider the advantages that Advocate, MD derives from being a member of a strong, publicly traded organization. FPIC’s management has demonstrated its ongoing support of Advocate, MD since its acquisition in late 2009, most notably through the execution of a significant quota share reinsurance agreement with a FPIC subsidiary, First Professionals Insurance Co.
The FSR of A- (excellent) and ICRs of “a-” have been affirmed for
FPIC Insurance Group and its following members:
- Anesthesiologists Professional Assurance Co.
- First Professionals Insurance Co.
- Intermed Insurance Co.
A.M. Best Co. affirmed the financial strength rating of A (excellent) and the issuer credit rating of “a” of HDI-Gerling America Insurance Co. (HDI-GAIC). The outlook for both ratings remains stable.
The ratings of HDI-GAIC largely reflect its solid risk-adjusted capitalization and the benefit of the explicit support provided through substantial internal reinsurance by HDI-Gerling Industrie Versicherung AG (HGI) and its subsidiary and immediate parent of HDI-GAIC, HDI-Gerling Welt Service AG (HGWS), via significant facultative cessions and 95% quota share treaties, which have been in effect since Jan. 1, 2000 and July 1, 2008, respectively; a retroactive reinsurance cover with HGI that covers any net adverse development on policies incepting prior to January 1, 2000; and the implied support of future parental commitment. HDI-GAIC principally markets global-linked commercial lines business to parent company clients that have operations in the United States.
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (superior) and the issuer credit rating (ICR) of “aa” of Mitsui Sumitomo Insurance Co. Ltd. (MSI). A.M. Best also affirmed the FSR of A+ (superior) and ICR of “aa” for the U.S. subsidiary entities of MSI: Mitsui Sumitomo Insurance Company of America and Mitsui Sumitomo Insurance USA Inc., whose pooled results compose Mitsui Sumitomo Insurance Group. The outlook for all ratings is stable.
The ratings reflect MSI’s superior risk-adjusted capitalization, business profile and growing overseas business.
MSI’s capitalization has remained at a strong level over the past five years, although its risk-adjusted capitalization, as measured by the Japanese solvency margin ratio and Best’s Capital Adequacy Ratio (BCAR), deteriorated in fiscal years 2007 and 2008, the agency says. MSI’s Japanese equity exposures, which share more than 30% of MSI’s invested assets, caused volatility with the deteriorating trend in capitalization. As MSI continued to reduce the equity exposures with the further enhancement of enterprise risk management (ERM), A.M. Best expects that MSI’s risk-based capitalization will show a favorable trend with lower volatility in the mid term.
MSI expects top-line growth through leveraging Sumitomo Life’s sales channels in fiscal year 2010. In addition, as a major subsidiary of MS&AD Insurance Group Holdings Inc., which is the largest non-life insurance holding company in terms of premium income in Japan, MSI will further enhance its business profile.
MSI plans to expand its overseas operations continuously, especially in the Asian and European markets. The company maintains one of the largest overseas networks among the Japanese non-life insurance companies. The overseas business will continue to grow in absolute volume as well as constitute a higher portion of the consolidated revenue of MSI going forward.
Fitch Ratings has affirmed the 'AAA' Insurer Financial Strength (IFS) ratings of The Northwestern Mutual Life Insurance Co. (NM) and Northwestern Long Term Care Insurance Co. (NLTC). At the same time Fitch has affirmed NM's 'AA+' Issuer Default Rating (IDR) and 'AA' surplus note rating. The Rating Outlook is stable.
Fitch's ratings reflect NM's very strong competitive position in the U.S. life insurance market and exceptionally strong balance sheet fundamentals. Fitch considers NM's key competitive advantages to include its successful distribution system, large and stable block of traditional life insurance, and focus on expense control.
NM's extremely strong balance sheet fundamentals reflect the company's very strong risk-based capital position, modest financial leverage, excellent liquidity, and relatively low-risk liability profile. Total adjusted statutory capital (TAC) increased to $19.5 billion or 17% at Sept. 30, 2010 due to the issuance of a $1.75 billion surplus note in March 2010, positive statutory operating earnings, and positive contributions from both net unrealized and realized investment gains. NM reported risk based capital at 459% at year-end 2009, which is on par with year-end 2008 and in line with rating expectations. NM had financial leverage of approximately 9% and a total financial commitment ratio (TFC) of 0.3 times (x) at Sept. 30, 2010.
NM's business is concentrated in sale of traditional cash value life insurance through a career distribution system. Traditional, cash value life insurance has very favorable credit characteristics (e.g. long-duration liabilities, limited guarantees, predictable earnings performance) that enhance NM's risk profile and bottom line contribution. However, this same concentration exposes NM to changes in the regulatory, legal and tax environment that may affect demand for cash value life insurance.
Fitch believes that NM's overall exposure to investment risk is manageable considering the company's stable, long-duration participating liabilities and strong statutory capital position. NM's investment risks include above-average exposure to commercial mortgages (15% of managed assets at Sept. 30, 2010) and public and private equities (8% of managed assets). Fitch's concern with NM's equity investment portfolio is the exposure of surplus to volatility from capital gains and losses over shorter time horizons. In response to the recent financial market turmoil, NM has reduced its target allocation to equities, including equity real estate, to approximately 13%, which Fitch views positively.
Fitch expects NM's realized investment losses to continue to moderate over the near term consistent with results reported over the past year and will likely be driven by continued weak macroeconomic conditions and its impact on company's commercial mortgage loan and corporate bond portfolio.
NLTC is a wholly owned stock subsidiary of NM, and its financial strength rating reflects the strength of the entire NM organization, as well as the explicit capital support agreement between NM and NLTC.
Key rating drivers that could lead to a downgrade include gross investment losses exceeding $1 billion in 2011, a decline to a sustained RBC ratio less than 400%, and an increase in financial leverage above 15%.
Fitch affirms the following ratings with a stable outlook:
Northwestern Mutual Life Insurance Co.
--Long-term IDR at 'AA+';
--6.063% surplus note due 2040 at 'AA';
--IFS at 'AAA'.
Northwestern Long Term Care Insurance Co.
--IFS at 'AAA'.
PMG Assurance Ltd.
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (excellent) and issuer credit rating (ICR) of “a” of PMG Assurance Ltd. (PMG). The outlook for both ratings is stable.
The ratings reflect PMG’s excellent capitalization, historically strong operating performance and strategic position as the captive insurance company for Sony Group, A.M. Best says. These strengths are partially offset by the company’s exposure to potentially large natural catastrophe losses.
PMG’s role is to meet certain global insurance requirements of Sony’s group members. In 2010, PMG did not renew nor participate in any non-related third-party treaties in any form. PMG continues its operations in Bermuda but with a strategic change in underwriting directed fully towards Sony-related business as a “pure” captive.
PMG’s strengths are derived from its underwriting focus, long-standing customer relationships and conservative operating strategy. Writing mostly proportional property and marine reinsurance business, PMG has added some life reinsurance business to achieve a more diversified and stable portfolio of exposures. However, the company maintains a large exposure to earthquake-related losses in Japan due to its coverage of Sony’s risks.
PMG’s results have been excellent in recent years, the ratings agency says. While it has benefited from rate increases, the company, through prudent underwriting, has mostly avoided the major wind and flood-related losses that have impacted the industry in recent years.
Standard & Poor's removed its 'A-' counterparty credit and financial strength ratings on State Auto National Insurance Co. (SA National) from CreditWatch, where they had been placed with negative implications on Dec. 8, 2010. The ratings agency affirmed its ratings on SA National and assigned a stable outlook. Subsequently, S&P withdrew its ratings on the company.
"The rating action reflects the sale of State Auto Group's nonstandard auto subsidiary, SA National, to Hallmark Insurance Co., which is not rated, effective Dec. 31, 2010," says S&P credit analyst Pablo Feldman. Up until that time, SA National was a subsidiary of State Auto Financial Corp. (BBB-/Stable/--) and a member of SAG.
In 2010, SA National wrote approximately $37 million in nonstandard automobile insurance coverage through independent agents in 21 states, which represented only 2% of SAG's total annual writings. In 2010, 100% of SA National's writings were ceded to State Auto Property & Casualty Insurance Co. (A-/Stable/--) and ultimately to State Auto Mutual Insurance Co., the lead carrier in SAG's intercompany reinsurance pooling agreement, with no retrocession back to SA National. Hence, SA National had no insurance liabilities on its balance sheet at the time of closing.
"State Auto Property & Casualty Insurance, a member of SAG's intercompany pooling agreement, is retaining all of the policyholder liabilities stemming from SA National's book of business written as of Dec. 31, 2010, which will be immediately ceded to the existing intercompany pooling agreement," says Feldman. "As a result, we are affirming our 'A-' ratings on SA National and subsequently withdrawing them."
Effective Jan. 1, 2011, all policies written by SA National, which is now owned by Hallmark, will not benefit from the 'A-' financial strength ratings on SAG. Effectively, SAG has sold a shell insurance company with renewal rights to Hallmark.
In 2011, SAG will continue to provide policy and claims administration services to SA National's new and renewing policyholders in the states where Hallmark does not currently do business until Hallmark can incorporate this business into its own systems. Any business that SAG administers will be ceded by SA National to SAG under a reinsurance agreement. We expect this arrangement will last about six months. Consequently, some SA National policyholders will benefit from the reinsurance support from SAG, and others will not.
A.M. Best Co. has affirmed the financialstrength rating of A- (excellent) and issuer credit ratings of “a-” of Trustmark Insurance Co. (Trustmark), Trustmark Life Insurance Co. (Trustmark Life) and Trustmark Life Insurance Company of New York (Trustmark Life NY). Concurrently, A.M. Best has affirmed the ICR of “bbb-” of the holding company, Trustmark Group Inc. and the debt rating of “bb” on $75 million of trust preferred securities issued by Trustmark Finance Trust I. The outlook for all ratings is stable.
The rating affirmations reflect the organization’s favorable operating results, solid risk-adjusted capitalization and the overall diversity of its insurance offerings. Additionally, Trustmark has continued to report good premium growth and profitability in its core voluntary benefits segment, particularly in a challenging economic environment. A.M. Best believes Trustmark is better positioned to have its core businesses’ revenue growth outpace revenue from non-core or divested segments.
While A.M. Best believes health care reform will not have a near term material impact on Trustmark Life’s group major medical business, longer term, it will likely pose numerous challenges. However, the Trustmark organization as a whole is much less reliant on group major medical business for revenue and operating earnings than in the past and is exploring a number of alternatives for 2014. Historically, the group major medical market always has been volatile and has become increasingly difficult on a state and national regulatory basis. In recent years, Trustmark has made a conscious effort to grow its non-insurance risk segments, such as third party administrative services through its
CoreSource division. In February 2010, the organization acquired Health Fitness Corp. (HFC) to use as a platform for its consumer health advice services.
