Ratings Roundup: Park, Atradius, Lackawanna, Farmers Mutual (MI & KS)

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Park Assurance Company of Burlington, VT, both with stable outlooks. “The ratings reflect Park’s strong balance sheet, excellent liquidity and conservative operating strategy,” said Best “The ratings also recognize the company’s favorable operating results and its role as a single parent captive of JPMorgan Chase & Co., a leading global financial services group. Partially offsetting these positive rating factors are Park’s large gross underwriting exposures as it offers very high insurance limits and insures some properties with substantial insured values. Park is very dependent on reinsurance in order to offer its various property programs and high limits.” Best also noted that “Park provides JPMorgan Chase with global property coverages, including coverages against terrorism losses. As such, it is a key component of JPMorgan Chase’s risk management strategy and benefits from the group’s significant financial resources. Park also benefits from the group’s extensive risk mitigation and safety programs. As the company cedes most of its global property program, its exposure to underwriting losses is minimal, barring significant losses from terrorism. Park only uses well-rated reinsurers, and its surplus base is more than adequate to support its asset and credit risk exposures. However, as it offers very high limits, its resulting gross underwriting exposures on its largest properties are also very high. Park’s dependence on reinsurance is therefore substantial, creating considerable credit risk in the event of exceptionally large losses. In addition, the company is dependent on the protection afforded by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). While the TRIPRA program offers significant protection from terrorism losses, the net impact on Park could still be burdensome considering the high coverage limits offered.” However, Best added that the possibility of such claims occurring has a “low probability.”

A.M. Best Co. has assigned a financial strength rating of ‘A’ (Excellent) and an issuer credit rating of “a” to Baltimore-based Atradius Trade Credit Insurance, Inc. (ATCI), both with stable outlooks. Best said: “The ratings reflect ATCI’s strong capitalization, conservative leverage, consistently profitable operating results, the expertise of the management team within the trade credit field and the strong risk management culture permeating all levels of the company’s operations.” However Best indicated that “somewhat offsetting these positive attributes are ATCI’s heavy reliance on reinsurance, including that provided through its Irish affiliate, Atradius Reinsurance Limited (Atradius Re) (Dublin, Ireland). Nevertheless, all reinsurance balances due from Atradius Re are secured through a combination of ceded balances payable and letters of credit, resulting in a much reduced level of credit risk.” Best added that the rating outlook reflects its “expectation that ATCI will continue to grow profitably through prudent expansion and capital growth.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-“of Lackawanna Insurance Group (LIG) and its members – Lackawanna Casualty Company (LCC) and its wholly owned subsidiaries, Lackawanna American Insurance Company (LAIC) and Lackawanna National Insurance Company (LNIC). The companies operate under an intercompany pooling agreement, and are all domiciled in Wilkes-Barre, Penn. Best said that the “rating actions reflect LIG’s excellent capitalization, strong profitability and solid underwriting performance achieved through its selective underwriting appetite and overall pricing flexibility through LAIC and LNIC. LIG has historically maintained strong policyholder retention ratios given its sound relationships with producers and service-oriented approach to writing business.” However as offsetting factors Best cited the “group’s limited spread of risk, both geographically and by product line, and high common stock leverage, which exposes the group to fluctuations within the equity markets. Despite these concerns, the outlook reflects LIG’s excellent capitalization achieved through the retention of strong earnings, Best added that it expects the LIG Group to “maintain underwriting discipline throughout market cycles.”

A.M. Best Co. has downgraded the financial strength rating to ‘B’ (Fair) from ‘B+’ (Good) and issuer credit rating to “bb” from “bbb-” of Farmers’ Mutual Insurance Company (MI) of Traverse City, Mich. Best has also revised the outlook for both ratings to negative from stable. Best explained that the downgrade and outlook change “reflect Farmers’ Mutual’s continued unfavorable operating performance trends that have caused surplus losses for five consecutive years, as well as its geographic concentration of risk within the northwestern portion of the lower peninsula of Michigan, which exposes the company to frequent and severe weather-related events.” Best did indicated that these “negative rating factors are partially offset by the company’s low underwriting leverage, balance sheet liquidity and consistent investment income. However, Farmers’ Mutual’s recent capital losses and continued unfavorable underwriting performance support the revised rating outlook.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B’ (Fair) and issuer credit rating (ICR) of “bb” of Ellinwood Kansas-based Farmers Mutual Insurance Company (KS), but has maintained its negative outlook on both ratings. Concurrently, Best withdrew the ratings at the company’s request and assigned a category NR-4 to the FSR and an “nr” to the ICR. Best added: “The ratings of Farmers Mutual Insurance Company (KS) reflect its concentration risk that resulted in fluctuating operating performance and impacted its risk-adjusted capitalization during the last five year period.”