Ratings Recap: National Fire, Alliance Mutual, Farmers Branch, Millers Capital, First American

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of National Fire & Casualty Company (NF&C) of Bloomington, Ill., a subsidiary of WBL Corp., and has revised the outlook for the ratings to negative from stable. “The revised outlook reflects NF&C’s decline in operating performance in recent years, which has fallen below similarly rated companies, in conjunction with a reduction in surplus reported in 2007 due in part to unrealized capital losses on its common stock portfolio,” Best explained. “The outlook reflects the increasing competitive pressures NF&C faces in its market, which may make it more challenging for the company to achieve operating results commensurate with its ratings.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B+’ (Good) from ‘B++’ (Good) and assigned an issuer credit rating (ICR) of “bbb-” to Alliance Mutual Insurance Company of Greensboro, N.C. The outlook for both ratings is stable. Best noted: “These rating actions follow Alliance’s continued operating performance downturn, driven in 2007 by elevated underwriting expenses partly due to demutualization costs, as well as adverse reserve development.”

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Farmers Mutual Fire Insurance Company of Branch County in Coldwater, Mich., and has revised its outlook on both of the ratings to negative from stable. “The ratings reflect Farmers Branch’s modest underwriting leverage and adequate balance sheet liquidity,” said Best. “Despite modest premium growth over the last five years, the company’s surplus has remained adequate relative to its liabilities. Given the volatile operating performance and negative pretax returns on revenue and equity, the rating outlook has been revised to negative. Best added: “Farmers Branch’s unprofitable underwriting results occurred over many years due to frequent weather-related events and large fire-related losses. Additionally, Farmers Branch’s has maintained an elevated expense ratio, which is expected to continue and strain future operating profitability.”

A.M. Best Co. has upgraded the financial strength rating to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating to “a-” from “bbb+” of Millers Capital Insurance Company of Harrisburg, Penna. with a stable outlook. “These rating actions reflect Millers Capital’s solid risk-adjusted capitalization, improved profitability and more favorable loss reserve development trends that have emerged in recent years,” Best explained. “These improvements have been driven by corrective actions implemented by management aimed towards improving underwriting profitability and addressing the variability in and adequacy of loss reserves.”

Fitch Ratings has downgraded and placed on Rating Watch Negative the following ratings of First American Corporation (FAF): First American Corporation: –Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB+’; –Senior unsecured debt to ‘BBB-‘ from ‘BBB’.
First American Capital Trust: –Trust preferred securities to ‘BB+’ from ‘BBB-‘.
First American Insurance Companies: –Insurer Financial Strength (IFS) to ‘A-‘ from ‘A’.
Fitch said the rating actions are “based on a significant deterioration in First American’s pro forma capital adequacy under Fitch’s Risk Adjusted Capital (RAC) model, bringing the company to a level that was incompatible with both the rating category and peer companies. First American’s policyholders’ surplus declined approximately $320 million during 2007, primarily due to an increase in non-admitted goodwill and intercompany receivables, and an increase in the supplemental reserve to reconcile the Statutory Premium Reserve with actuarially determined claims reserves also contributed to reduced surplus levels.”