Ratings: Rep. Western, Workmen’s Auto, Farmers Union, Town and Country, Sequoia, No. Am. Casualty

A.M. Best Co. has upgraded the financial strength rating to ‘B+’ (Good) from ‘B’ (Fair) and issuer credit ratings (ICR) to “bbb-” from “bb” of Arizona-based Republic Western Insurance Group and its members, which include Republic Western Insurance Company and its wholly owned subsidiary, North American Fire & Casualty Insurance Company of Mandeville, LA. The outlook for all ratings is stable. Best said: “The ratings reflect Republic Western’s solid risk-adjusted capitalization and improved underwriting and operating performance in recent years. The improved performance and subsequent capitalization accumulation were driven by management’s corrective actions, including cost reductions, rate refinement and the discontinuation of all non-U-Haul business. Furthermore, Republic Western’s publicly traded parent, AMERCO, does not rely on its insurance operations to meet its debt service and holding company obligations, which will further benefit growth in surplus.” However, Best also noted: “These positive factors are offset by historically poor underwriting performance and weakened capitalization, primarily due to significant adverse loss reserve development from discontinued programs.” But the rating agency also indicated that despite these concerns, the rating outlook is based on its “expectation that improved operating results will continue to offset the historical earnings drag generated from the group’s discontinued operations and contribute to surplus growth over the near term.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B’ (Fair) and issuer credit rating of “bb” of Workmen’s Auto Insurance Company of Los Angeles. “The revised outlook reflects the deterioration in Workmen’s risk-adjusted capitalization following significant operating losses in 2008,” best explained. “The ratings of Workmen’s reflect its marginal risk-adjusted capitalization and elevated underwriting leverage. Underwriting performance was impacted by significant underwriting losses as well as onetime costs due to expenses from litigation and the execution of management’s product and distribution strategies. In addition, the ratings recognize the company’s concentration of exposures in the non-standard automobile line of business.” However best did note that these “rating factors are partially offset by the actions of the management team who implemented refined underwriting procedures, revised rates, expanded its product distribution, initiated agency management strategies and improved claims procedures. Additionally, Workmen’s holds a conservative investment portfolio consisting primarily of highly-rated bonds, which generated relatively consistent levels of investment income that offset underwriting losses over the past five years.”

A.M. Best Co. has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and issuer credit rating to “bbb-” from “bbb” of Arizona-based Farmers Union Mutual Insurance Company, and has removed both ratings from under review with negative implications and assigned a negative outlook. Best explained: “The ratings were placed under review on April 7, 2009, following a significant decline in Farmers Union’s surplus in 2008 and pending discussions with management regarding its capital management strategy. The rating downgrades are due in part to the continuation of underwriting losses in 2009, following a 35.5 percent surplus decline in 2008. Farmers Union experienced frequent and severe storm losses from wind, hail and tornadoes in 2008, resulting in a $2.7 million underwriting loss. Furthermore, a severe ice storm in January 2009 and tornadoes in April 2009 also resulted in significant losses.” Best said the negative outlook reflects its “concerns with Farmers Union’s poor operating performance and ability to generate surplus growth.” Best also indicated that it had “considered Farmers Union’s capital management strategies, which included a 25 percent quota share reinsurance agreement that will improve net premium leverage.”

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 Arizona-based Town and Country Mutual Insurance Company, and has removed the ratings from under review with negative implications and assigned a stable outlook. “The ratings were placed under review with negative implications on April 7, 2009, following a significant decline in Town and Country’s surplus in 2008 and pending discussions with management regarding its capital management strategy,” best explained. “The rating downgrades are due in part to the continuation of underwriting losses in 2009, following a 40.5 percent surplus decline in 2008. Town and Country experienced frequent and severe storm losses from wind, hail and tornadoes in 2008, resulting in a $1.2 million underwriting loss. Furthermore, a severe ice storm in January 2009 and tornadoes in April 2009 also resulted in significant losses.” In addition best indicated that it “had considered Town and Country’s capital management strategies, which included a 25 percent quota share reinsurance agreement. This quota share will improve net premium leverage and contributed to the assignment of the stable outlook.” However Best said it “remains concerned with Town and Country’s poor operating performance and ability to generate surplus growth.”

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Sequoia Insurance Group and two of its members, Calif.-based Sequoia Insurance Company and its wholly owned subsidiary, Sequoia Indemnity Company of Las Vegas, Nev. Best has also affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of another member of Sequoia, Personal Express Insurance Company. The outlook for these ratings is stable. Best said: “The rating actions reflect Sequoia’s excellent risk-adjusted capitalization, solid underwriting and operating performance and the benefit derived from its niche underwriting expertise in the small to medium-sized commercial market place. The ratings also reflect the financial support and flexibility provided by Sequoia’s immediate parent, Strongwood Insurance Holdings Corporation and its relationship with JPMorgan Chase & Company.” However, best indicated that “the group’s high cost structure and the inherent risks and limitations associated with Sequoia’s concentration in California” should be considered as offsetting factors. However best indicated that despite these concerns, the revised outlook recognizes its “expectation that Sequoia’s strong underwriting and operating results will be sustained over the near term, and capitalization will remain well supportive of the ratings.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a” of North American Casualty Group (NAC) and its members, California Insurance Company, based in San Francisco, and Continental Indemnity Company, based in Cedar Rapids, Iowa, which operate under a pooling arrangement. The outlook for all of the ratings is stable. “The ratings reflect NAC’s strong capitalization and the favorable historical underwriting performance of business produced by its parent, Applied Underwriters, Inc. (AU), a leading provider of bundled workers’ compensation insurance and payroll processing services to small and medium-sized businesses,” said Best. “The ratings also recognize the financial flexibility and support provided by the group’s publicly traded ultimate parent, Berkshire Hathaway Inc.” As offsetting factors, best noted “NAC’s limited operating experience and its business concentration risk; operating predominately as a workers’ compensation insurer with limited geographic spread that exposes its operations to potential regulatory, judicial, legislative and competitive risks.”