Ratings: US Liability, Commercial Casualty, Stonetrust, Continental American, Prime Group, American Agri

A.M. Best Co. has affirmed the financial strength rating of ‘A++’ (Superior) and issuer credit rating of “aa+” of United States Liability Insurance Group and its members. The outlook for all of the ratings is stable. The ratings reflect US Liability’s “strong capitalization, outstanding long-term operating profitability and the advantages derived from management’s proven underwriting discipline,” said Best. They also recognize the “implicit and explicit financial support provided by its ultimate parent, Berkshire Hathaway Inc. and the added financial flexibility afforded by its (re)insurance affiliate” as demonstrated in January 2007.” Best described the actions taken starting on the date by each member of the group, when they entered into a 50 percent loss portfolio transfer agreement and a 50 percent quota share reinsurance agreement with an affiliate, National Indemnity Company, an indirectly owned subsidiary of Berkshire Hathaway. Best said the “effect of these transactions led to a substantial reduction in the group’s underwriting leverage, which then helped to facilitate the extraordinary stockholder dividend taken that year.” However, Best also indicated that US Liability’s “high investment leverage exhibited by the level of unrealized losses reported in 2008 and first quarter 2009 due to the global financial crisis, and the group’s dependence on a single method of distribution source, the professional wholesaler,” should be considered as offsetting factors. Nonetheless, Best said the “rating outlook reflects the group’s strong risk-adjusted capitalization, outstanding historic operating profitability and favorable near-term and long-term prospects.” In addition to US Liability, the Group includes Mount Vernon Fire Insurance Company, U.S. Underwriters Insurance Company and United States Liability Insurance Company.

A.M. Best Co. has upgraded and removed from under review the financial strength rating (FSR) to ‘B+’ (Good) from ‘B-‘ (Fair) and the issuer credit rating to “bbb-” from “bb-“of Los Angeles-based Commercial Casualty Insurance Company (CCIC),and has assigned them a stable outlook. Best noted that the ratings had been placed under review with positive implications following the announced asset exchange agreement between Berkshire Hathaway Inc. and White Mountains Insurance Group, Ltd. Under the terms of this agreement, Berkshire announced that it would exchange its ownership in White Mountains for asset considerations, which included CCIC. Effective October 31, 2008, CCIC became an indirect wholly owned subsidiary of Berkshire. “The ratings reflect CCIC’s adequate risk-adjusted capitalization, the orderly run-off of insurance liabilities and its ownership by Berkshire,” said Best. However the “adverse development of prior year loss reserves, modest business position as a run-off company and volatile operating performance,” are offsetting factors. “The outlook reflects the company’s sound liquidity position with a conservative invested asset-base and its financial flexibility benefits from its position as an indirect wholly owned subsidiary of Berkshire.”

A.M. Best Co. has revised its rating outlook to positive from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Stonetrust Commercial Insurance Company, of Baton Rouge. Best said the “rating actions reflect Stonetrust’s solid capitalization, profitable earnings achieved through strong underwriting performance and growing investment income and management’s underwriting experience within its niche workers’ compensation marketplace.” However “the areas of adverse reserve development in prior accident years, the concentrated market profile operating as a monoline insurer writing predominantly in a single state and the execution risk associated with premium growth in contiguous states while maintaining pricing adequacy,” should be considered as offsetting factors. Despite these concerns, the rating outlook is reflective of the Company’s improved capitalization and Best’s expectation that “solid operating performance will be sustained over the near term and will contribute to organic surplus growth.”

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 So. Carolina-based Continental American Insurance Company, and has revised its rating outlook to stable from positive. The rating upgrades reflect Continental American’s “continued favorable operating earnings and consistent growth of surplus and sales in recent years.” Best added that “Continental American has demonstrated increased direct sales and premiums while moderating the amount of business written though joint ventures. Additionally, the company has made good progress in diversifying its product mix, expanding geographically into additional states and writing business over a number of different industries by utilizing an increased number of marketing organizations.” However, Best also noted that “while Continental American has generated consistent premium growth and favorable profitability in the worksite market for a number of years,”. Best believes an extended recession could somewhat inhibit operating results in the near term.”

A.M. Best Co. has placed the financial strength rating of ‘B++’ (Good) and issuer credit ratings (ICR) of “bbb” of Utah-based Prime Insurance Group and its members, Prime Insurance Company and Prime Insurance Syndicate, Inc. (both of Illinois), under review with negative implications. Best said it too these rating actions “in response to the excessive financial leverage at the parent company, Prime Holdings Insurance Services, Inc., and the uncertainty related to the parent’s ability to raise capital, which is currently underway. The under review status also considers the inherent risk in any major transaction as respects to change in controlling ownership.” Best added that the parent Company’s “high financial leverage stems from its offer to existing shareholders to redeem $18 million of common equity combined with the additional debt taken on by the parent to finance this program. Dividends from members of Prime are the parent’s primary source of funding. As of first quarter 2009, the parent’s adjusted debt-to-total capital was 73.6 percent—a level in excess of A.M. Best’s notching guidelines, which should be no greater than 65 percent to support the ICR assigned to Prime. On a positive note, Prime’s statutory capitalization is strong and operating performance continues to be very good.” Best added that the ratings would remain under review pending its review and further discussions with management relating to the parent’s capital raising initiative.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit rating (ICR) to “a” from “a-” of Texas-based American Agri-Business Insurance Company (AA-BIC), both with stable outlooks. These rating actions follow the “state approval of a 100 percent quota share agreement with AA-BIC and the affiliated pool, Endurance American Insurance Company (EAIC) of Wilmington, Del.,” said Best. “AA-BIC benefits from its strong level of overall capitalization, prudent reinsurance protection and management’s extensive experience with the federally subsidized multiple peril crop insurance (MPCI) program,” best added. Best affirmed the FSR of ‘A’ (Excellent) and ICRs of “a” of EAIC and its affiliates in April 2009.