A.M. Best Co. downgraded the financial strength rating (FSR) to C+ (marginal) from B (fair) and issuer credit rating (ICR) to “b-” from “bb” of American Community Mutual Insurance Co. The outlook for both ratings is negative.
The downgrades reflect an expected material net operating loss resulting from reserve strengthening, which will occur in third quarter 2009, with a corresponding decrease in surplus, the rating agency says. An anticipated reduction in the company’s deferred tax asset in third quarter 2009 is expected to further decrease surplus. In addition, two surplus notes represent a significant portion of total surplus.
A.M. Best Co. affirmed the FSR of A- (excellent) and issuer credit rating of “a-” of Bahamas First General Insurance Co. Ltd. (BFG). The outlook for both ratings is stable. BFG is the primary holding of its parent company, Bahamas First Holdings Ltd.
The ratings are based on BFG’s continued solid capitalization, favorable operating performance and established presence in the Bahamian market, according to A.M. Best. These factors are supported by the company’s conservative catastrophe program, underwriting controls, local market expertise and enhanced risk management.
A.M. Best Co., Fitch Ratings and S&P announced actions on Berkshire Hathaway Inc. (BRK) after news of its intention to acquire Burlington Northern Santa Fe for approximately $44 billion, in a cash and stock transaction.
A.M. Best placed the FSR and ICR of the domestic and international property/casualty and life/health subsidiaries of BRK under review with negative implications. A.M. Best also placed the FSRs of A++ (superior) and ICRs of “aaa” of National Indemnity Group and GEICO and their members under review with negative implications. In addition, A.M. Best has placed the FSRs of A++ (superior) and ICRs of “aa+” of General Re Group (Gen Re) and its members under review with negative implications.
Fitch Ratings placed the ratings of BRK and the ratings of its insurance subsidiaries on Rating Watch Negative. Fitch's decision to place BRK's ratings on Rating Watch Negative reflects the agency's concerns about the transaction's effect on its asset profile and capitalization. Fitch views the BNSF acquisition, along with BRK’s investments in utilities and energy and finance company subsidiaries, as increasingly shifting the company's asset profile toward concentrated investments in operating subsidiaries that use more financial leverage and often have greater sensitivity to general economic conditions than the company's long-held insurance and holding-company equity-oriented investments.
S&P placed its ratings on BRK and various affiliates on CreditWatch with negative implications. The rating agency says BRK will assume approximately $10 billion of BNSF debt, making it BRK's largest acquisition to date. BRK already owns nearly 23% of the stock of BNSF. The acquisition of the remaining shares will be financed with a combination of 60% cash and the remaining 40% through the issuance of new BRK shares. S&P expects that a significant part of the cash portion will come from BRK's core insurance operations, as has historically been the case in other transactions.
Connaught Insurance Co. Ltd.
A.M. Best Co. affirmed the FSR of B+ (good) and the ICR of “bbb-” of Connaught Insurance Co. Ltd., the captive insurance company of Thomas Greg and Sons Ltd. (TG&S), a printing and security specialist. The outlook for the ratings is stable.
The ratings reflect Connaught’s adequate level of risk-adjusted capitalization in addition to a historically good operating performance. Offsetting factors include a potentially volatile underwriting performance and a restricted business profile.
First Beacon Insurance Co.
A.M. Best Co. affirmed the FSR of B++ (good), downgraded the ICR to “bbb” from “bbb+,” and revised the outlook to negative from stable for First Beacon Insurance Co.
The ratings reflect First Beacon’s robust capitalization, low leverage measures, continued recent favorable operating performance and the strategic role it serves as a captive insurance company for Alcatel-Lucent, primarily for the parent’s U.S. exposures.
S&P revised its outlook on Bermuda-based reinsurer Harbor Point Re Ltd. and its U.S.-based subsidiary Harbor Point Reinsurance U.S. Inc. to stable from negative. At the same time, S&P affirmed the “A-“ counterparty credit and FSRs on both companies (together, Harbor Point). The change in Harbor Point's outlook to stable reflects that the group has met S&P’s expectations as laid out in its outlook published on Jan. 27, 2009. The rating agency says the group has reported a strong year-to-date combined ratio of 79%, and return on revenue (ROR) of 30%.
HCC Insurance Holdings
Fitch Ratings affirmed the long-term issuer default rating (IDR) at “A+” and the $125 million 1.3% convertible notes due April 1, 2023 at “A” for HCC Insurance Holdings Inc.
Fitch also affirmed the “AA” insurer financial strength ratings (IFS) of HCC's insurance subsidiaries. The rating outlook is stable.
The ratings on HCC reflect the company's leading market position in a number of narrowly defined, non-correlated specialty insurance segments, solid capital position at its insurance subsidiaries and low financial leverage at the holding company, conservative investment profile, strong underwriting results and adequate loss reserves, Fitch says.
Manulife Financial Corp. and its subsidiaries
S&P placed its “AA-“ long-term counterparty credit rating on Manulife Financial Corp. (MFC) on CreditWatch with negative implications. The rating agency also affirmed its “AA+” counterparty credit and financial strength ratings on MFC's core and guaranteed operating subsidiaries and revised the outlook to negative from stable. The companies affected by this action are: The Manufacturers Life Insurance Co. (MLI), John Hancock Life Insurance Co., John Hancock Life Insurance Co. (U.S.A.), John Hancock Variable Life Insurance Co., John Hancock Life & Health Insurance Co. and John Hancock Life Insurance Co. of New York.
The CreditWatch negative on MFC, the holding company, reflects the implications of its planned reorganization that would make its primary U.S. subsidiaries wholly owned indirect subsidiaries of Manufacturers Life Insurance Co., according to S&P.
The negative outlook on MFC's operating companies reflects the group's continued sensitivity to the equity markets and declining interest rates, and the pressure that remains on core operating earnings, fixed charge and capital adequacy. The outlook also reflects S&P’s view of the firm's enterprise risk management, which S&P has changed to strong from excellent
A.M. Best Co. affirmed the FSR of “A-” (excellent) and the ICR of “a-” of New Technology Insurance (NTI). The outlook for both ratings is stable. Concurrently, A.M. Best has withdrawn the ratings at the company’s request, and assigned a category “NR-4” to the FSR and “nr” to the ICR. The rating actions reflect the decisions of NTI’s management to withdraw from A.M. Best’s interactive rating process following a change of focus towards more intra-group business.
S&P placed its “AA” counterparty credit and FSR on Primerica Life Insurance Co. (PLIC) on CreditWatch with negative implications, following the announcement that Primerica has filed a registration statement with the SEC for an IPO. The CreditWatch listing reflects S&P’s initial assessment and pending analysis of the implications of the IPO and related transactions for the ratings on PLIC. S&P expects that these transactions could materially alter PLIC's existing financial profile, in terms of its capital structure, investment risk, and financial management.
A.M. Best Co. affirmed the FSR of A- (excellent) and ICR of “a-” of RoyalStar Assurance Ltd. (RSA). The outlook for both ratings is stable.
The ratings reflect RSA’s solid risk-adjusted capitalization, favorable operating results and strong reinsurance program, according to A.M. Best. The rating agency believes the company is well established in its various markets with a management team that is experienced in dealing with market cycles. These positive characteristics are supported by RSA’s disciplined approach to underwriting, capital maintenance and risk management.
A.M. Best Co. upgraded the FSR to A (excellent) from A- (excellent) and ICR to “a” from “a-“of Southern Mutual Insurance Co. The ratings have been removed from under review with positive implications and assigned a stable outlook.
The ratings were placed under review with positive implications on Sept. 10, 2009, following the announcement of the affiliation between Southern and Donegal Mutual Insurance Co. The affiliation received the approval of the Commissioner of Insurance for the State of Georgia on Oct. 28, 2009.
A.M. Best Co. affirmed the FSR of A++ (superior) and ICR of “aa+” of Tokio Marine & Nichido Fire US Group (US Group) and its members. The US Group is comprised of the U.S. Branch of Tokio Marine & Nichido Fire Insurance Co. Ltd. (TMNF) (Japan) and its three wholly owned reinsured subsidiaries—TM Casualty Insurance Co., TM Specialty Insurance Co. and Trans Pacific Insurance Co.
The ratings of the US Group reflect the status of the U.S. Branch of TMNF and the critical role it plays as part of TMNF's global strategy. The primary focus of the US Group’s strategy is to support the insurance needs of TMNF’s clients that are doing business in the United States. The ratings also reflect the strong risk-adjusted capitalization and excellent overall earnings of the US Group, A.M. Best says.
Universal American Corp. and core subsidiaries
S&P revised its outlook on Universal American Corp. and its core insurance operating subsidiaries to stable from negative. At the same time, it affirmed all of its ratings on the companies.
The outlook revision reflects Universal American's operating performance through the first three quarters of 2009, which has been in line with S&P’s expectations for the current rating, as well as its ultimately successful integration of MemberHealth Inc. In the first three quarters of 2009, pretax GAAP operating earnings increased 11% over the same period in 2008. The insurance companies also maintained capital redundancy at the “A” level, as measured by S&P’s capital model. The “BBB+” FSR continues to reflect Universal American's good competitive position, earnings and strong capitalization.
A.M. Best Co. revised the outlook to stable from positive and affirmed the ICR of “bbb” of Upland Mutual Insurance Inc. Additionally, A.M. Best affirmed the FSR of B++ (good) of Upland. The outlook for the FSR is stable.
The positive outlook previously assigned to Upland’s ICR was revised to stable following the decline in surplus from underwriting and investment losses. Underwriting losses resulted from increased frequency of wind and hailstorms and the impact of the EF-3 tornado in Chapman, Kan.
The ratings of Upland reflect its adequate level of risk-adjusted capitalization, driven by moderate underwriting leverage and conservative reserving practices, the rating agency says. The ratings also recognize the company’s long-standing market presence in Kansas and favorable overall liquidity measures.
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