Ratings Roundup: Am Farm/Ranch, Great Northwest, Business Alliance

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B-‘ (Fair) from ‘B+’ (Good) and issuer credit rating (ICR) to ‘bb-” from ‘bbb-” of Oklahoma City-based American Farmers & Ranchers Group and its members American Farmers & Ranchers Mutual Insurance Company and American Farmers & Ranchers Insurance Company of Boise, Idaho. Best also said that all of the “ratings remain under review with negative implications due to the uncertainty regarding the group’s future capital position and the challenges management will face integrating new business into the current operating structure.” Best explained: “These rating actions are a result of the significant decline in capitalization that occurred in 2007 and the first six months of 2008, due primarily to an increase in the frequency of major storm losses in its operating territory. The decline in surplus while maintaining significant underwriting risk adversely affected the group’s risk-adjusted capitalization. In addition, the recent acquisition of American Farmers & Ranchers Insurance Company, which occurred in late 2007, creates operational and financial challenges as management integrates this business into its existing portfolio while implementing its geographic expansion strategies.”

Standard & Poor’s Ratings Services has revised its outlook on Great Northwest Insurance Co. (GNIC) to negative from stable. S&P also affirmed its ‘BB-‘ counterparty credit and financial strength ratings on GNIC. “The revised outlook reflects our concerns about GNIC’s declining capital base and deteriorating underwriting performance,” explained credit analyst Tracy Dolin. S&P said: “GNIC is also susceptible to large shock losses because of its high reinsurance attachment point. GNIC experienced two major catastrophe events and eight large losses for the first six months of 2008, hurting its loss ratio by 10 percent and 12 percent, respectively. In July, the company generated additional catastrophe losses. We had anticipated GNIC’s operating performance would continue to be volatile, albeit not to the extent of recent performance. In addition S&P noted: “GNIC also has a high expense structure in place. As a small company, despite close to flat premium growth, unusual expenses significantly affect its expense ratio. GNIC’s expense ratio increased to 35.9 percent during the first six months of 2008 from 29.8 percent for the same period last year.”

A.M. Best Co. has placed the financial strength rating of ‘B’ (Fair) and issuer credit rating of “bb” of San Bruno, Calif.-based Business Alliance Insurance Company (BAIC) under review with positive implications. Best said the “rating actions follow the recent filing of a Form A Information Statement with the California Department of Insurance by PSM Holding Corporation (PSMHC) (New York, NY) to obtain the common shares and ownership of BAIC, in partial settlement of a $40 million judgment against the company and its principal owners. Concurrently, the trustee for BAIC’s parent company, National Farm Financial Corporation (NFFC), has appealed the judgment against the company. The outcome of the appeal will not be known until late 2009. Public Service Mutual Insurance Company (New York, NY) is the parent company of PSMHC, as well as the lead company of the Magna Carta Companies (New York, NY). Members of Magna Carta Companies include Paramount Insurance Company (New York, NY) and Western Select Insurance Company (Los, Angeles, CA).”