Ratings: Ancon/Petroleum Casualty, Horace Mann, Great Northwest

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A++’ (Superior) from ‘A+’ (Superior) and issuer credit ratings (ICR) to “aa+” from “aa” of Ancon Insurance and Petroleum Casualty Group and its member companies, Ancon Insurance Company, Inc. of Burlington, Vermont and Petroleum Casualty Company of Houston, Texas. The outlook for both ratings is stable. Best said: “The ratings reflect the group’s superior capitalization, consistently strong operating results and exemplary risk management strategies. The ratings also consider the extensive experience and level of commitment of the group’s parent, Exxon Mobil, whose management incorporates the group as a core element in the overall risk management program of Exxon Mobil.” Best also said it has “taken a favorable view of the group’s overall profile within the parent’s structure and recognizes the benefits inured from this. Particular attention is paid to the fact that the senior management of Exxon Mobil is intimately involved in the operation of the captive. Ancon is one of the largest captives in the United States and benefits from its history of more than 65 years operating as a captive insurer.”

Standard & Poor’s Ratings Services has assigned its preliminary ‘BBB’ senior debt, ‘BBB-‘ subordinated debt, and ‘BB+’ preferred stock ratings on Horace Mann Educators Corp.’s $300 million universal shelf, which was filed on Nov. 26, 2008. The company’s prior $300 million universal shelf registration expired today with about $100 million remaining. As of Oct. 8, 2008, Horace Mann had about $275 million of total debt outstanding. “The ratings reflect Horace Mann’s niche competitive position in the K-12 educators market, diversified earnings provided by the P/C and life/annuity operations, and a new agent business model that strives for increased productivity,” explained credit analyst Tracy Dolin. “These positive factors are offset partially by deteriorating operating performance, underscored by high catastrophe and investment losses in 2008.” S&P also indicated that the Group “faces challenges in its attempts to better penetrate its chosen marketplace, continuing P/C rate pressures, lack of growth in its traditional life sales, and execution risks in implementing the new agent business model.” Dolin added that the “negative outlook is based on a number of factors that could affect the insurer’s financial strength in 2008 and 2009. These include continued relatively high catastrophe frequency in the U.S. P/C industry, as well as general credit and equity market deterioration.”

Standard & Poor’s Ratings Services has placed its ‘BB-‘ counterparty credit and financial strength ratings on Great Northwest Insurance Co. (GNIC) on CreditWatch with negative implications. “The rating action reflects our concerns about GNIC’s long-term capital management plans, its declining capital adequacy, and steadily deteriorating underwriting performance,” explained credit analyst Tracy Dolin. S&P noted that “surplus dropped to $6.3 million as of Sept. 30, 2008, from $7.8 million as of June 30, 2008 (our last review) and from $9.2 million as Dec. 31, 2007. During the first nine months of 2008, the company experienced catastrophe losses of $1.13 million. GNIC is also susceptible to large shock losses because of its high reinsurance attachment point. During the first nine months of 2008, the company experienced $1.02 million of large shock losses. The company’s combined ratio of 130.7 percent with a 94 percent loss ratio was very weak for the first nine months of 2008. Hawaiian Insurance & Guaranty Co. Ltd. (HIG) benefited from a lower catastrophe year, producing a 93 percent combined ratio for the same period. Additionally, because GNIC is a small company (despite close to flat premium growth), unusual expenses significantly affect its expense ratio. GNIC’s expense ratio increased to 36.7 percent during the first nine months of 2008 from 30.7 percent for the same period last year. We will be addressing these concerns over the next few weeks.” S& P added that it expects “GNIC’s net premium growth to be in the low single digits in 2008, primarily driven by recent rate increase actions and western expansion efforts, and expect the combined ratio to remain very high for the remainder of 2008. GNIC’s small and shrinking capital base leaves it susceptible to large shock losses. HIG’s property catastrophe exposure should continue to be managed through high reinsurance protection.”