Ratings Update: Brokers, Insurers and Bad Timing

Brokerages

Despite economic woes, the multibillion dollar global insurance brokerage vertical was unwavering in its 2008 financial returns. Aon topped the list in Best’s Review's fourth annual Top Global Insurance Broker ranking reports with $6.2 billion in brokerage revenues. Marsh Inc. took second place with $4.5 billion in brokerage revenues. Others in the top five include Willis Group Holdings Ltd., Arthur J. Gallagher & Co. and Jardine Lloyd Thompson Group plc.

Kentucky Farm Bureau Mutual Insurance Co.

Despite $140 million in reported underwriting losses and $227.4 million in payouts to policyholders in a difficult 2008 that included claims related to Hurricane Ike, Louisville-based Kentucky Farm Bureau finished 2008 with more than 1.2 million policies in force and $1.6 billion in assets, earning an “A+” financial strength rating from insurance rating and information agency, A.M. Best Co. Recognizing the company for its “strong capital position,” A.M. Best also based its rating on Kentucky Farm Bureau’s “low underwriting leverage, solid operating performance, moderate investment risk and consistently favorable loss reserve development,” Kentucky Farm Bureau said in a press release.

PartnerRe

The ratings remain unchanged from A.M. Best on PartnerRe, Hamilton, Bermuda, (financial strength rating of A+) and issuer credit ratings of “aa-“ which, says the agency, reflect the reinsurer’s excellent business profile, strong risk-adjusted capitalization and solid ERM practices. In review of its parent company’s plan to purchase PARIS RE Holdings Ltd (Paris Re) in an all-stock transaction, PartnerRe Ltd. received a ratings outlook of stable.

Employers Direct

This Agoura Hills, Calif., company has experienced significant challenges due to state-based funding uncertainty and escalating medical costs related to their workers’ compensation unit, the company is reducing staff by approximately 18% and will stop soliciting new and renewal California business on a direct basis as of August 1. As a result, A.M. Best Co. has downgraded Employers Direct financial strength rating to "B++" from "A-" and issuer credit rating to "bbb+" from "a-." The outlook for the ICR is negative, and the outlook for the FSR has been revised to stable from negative, A.M. Best said. The rating agency said in a statement that it will monitor the insurer’s results to ensure that its risk-adjusted capitalization remains supportive of its ratings.

Prudential Financial Inc.

Prudential Financial Inc. and its insurance company received revised ratings from Moody’s Investors Service to stable from negative, the companies report. The change reflects the life insurer's improved financial flexibility and capitalization after it tapped the capital markets.

Prudential was in the news earlier this month when it rejected federal bailout funds, instead raising approximately $1.4 billion in common equity and $1 billion in senior debt, reports Moody's. The credit agency also noted a drop in the company's short-term financing to fund operating leverage improved its credit profile.
Despite the positive news, Moody's said in a statement that Prudential faces a number of challenges, such as concerns about the company's earnings and capitalization, as well as lower equity returns amid the recession, which the rating agency will continue to monitor.

In addition, Moody's said Prudential is one of the most exposed life insurers to variable annuity business and that the company has significant sensitivity in its earnings and regulatory capital adequacy to equity price levels.

American International Group Inc.

Finally, in spite of the positive language used by executives to describe their view on AIG’s future at its annual meeting last Tuesday (AIG is “more stable than before,” and there is an “excellent chance” it will be able to repay the government’s loan), it faced hurdles related to bad timing that seem to be having an effect on the organization even today.

The New York Stock Exchange said late last Wednesday that it posted a notice suspending and delisting American International Group shares by mistake. The exchange admitted erroneously posting the notice on its Web site, then removed it when it discovered the mistake.

"AIG is not subject to suspension and delisting, and was not responsible for the error," the exchange said in a statement. "The NYSE regrets the error." AIG (AIG) completed a 1-for-20 reverse stock split on Wednesday. The insurer's shares fell 22% to close at $18.08 on Friday, and currently is trading at $16.65.