Ratings Roundup: Erie Group, Waco Fire & Casualty, Maya Assurance

A.M. Best Co. has commented that the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Erie Insurance Group and its members are unchanged following the announcement that Erie Indemnity Company has entered into a definitive agreement with Erie Insurance Exchange for the sale of Erie Indemnity’s three wholly owned property/casualty subsidiaries—Erie Insurance Company, Erie Insurance Company of New York and Erie Insurance Property & Casualty Company—to the Exchange for an aggregate purchase price equal to the subsidiaries’ GAAP book value as of December 31, 2010. In addition Best said the the FSR of ‘A’ (Excellent) and ICR of “a” of Erie’s life affiliate, Erie Family Life Insurance Company, is unchanged following the announcement of Erie Indemnity entering into a definitive agreement for the sale of its 21.6 percent ownership interest in Erie Family Life to the Exchange for a per share purchase price equal to 95 percent of Erie Family Life’s GAAP book value per share as of March 31, 2011. All companies are domiciled in Erie, PA, except where specified. The sale of the property/casualty subsidiaries is scheduled to close by December 31, 2010, and the sale of Erie Indemnity’s equity interest in Erie Family Life is scheduled to close by March 31, 2011. Both transactions are subject to regulatory approval. Best observed that under the new structure, all property/casualty and life operations will be owned by the Exchange, and Erie Indemnity will continue to function as the management company. Following the completion of the sale, Best said it “will withdraw the ICR of “a+” of Erie Indemnity due to it no longer owning any risk-bearing insurance entities.” Best summarized the ratings actions as follows: The FSR of ‘A+’ (Superior) and ICRs of “aa-” are unchanged for Erie Insurance Group and its following property/casualty members: Erie Insurance Exchange; Erie Insurance Company; Erie Insurance Company of New York; Erie Insurance Property & Casualty Company; Flagship City Insurance Company

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Atlanta-based Waco Fire and Casualty Insurance Company. The positive outlook reflects “Waco’s improved risk-adjusted capital position” as well as Best’s expectations for “greater stability in premium levels and cash flows as the run off of a discontinued book of affiliated business nears completion,” said the bulletin. “The run-off book of business was written on a retrospective rating basis, which resulted in fluctuations in premium volumes and, consequently, variability in operating earnings and negative operating cash flows. Large retro premiums are no longer expected, resulting in less volatile premium levels and a return to positive cash flow generation. In addition Best explained that the ratings reflect Waco’s strong risk-adjusted capitalization, low underwriting leverage and conservative loss reserve position, as evidenced by continued favorable loss reserve development over the prior nine accident years.” As offsetting factors best cited “Waco’s variable operating performance in recent years, narrow geographic and product spread of risk and modestly elevated common stock leverage. Waco, a subsidiary of Watkins Associated Industries, Inc., is principally engaged in providing insurance coverages to associated entities, including commercial auto liability, auto physical damage, cargo, employment practices liability, general liability, bobtail and renters’ insurance. In addition, through its relationship with a managing general agency, Waco has provided private passenger auto coverage to non-standard clients within Georgia since 2007.

A.M. Best Co. has assigned a financial strength rating of ‘B’ (Fair) and issuer credit rating of “bb” to New York-based Maya Assurance Company, both with stable outlooks. The ratings reflect Maya’s “fair risk-adjusted capitalization and the operational and financial risks of a relatively new company growing in highly competitive markets,” said Best. “Offsetting these factors are the company’s generally favorable operating performance since commencing operations in March 2006 and its expertise within the for-hire-livery market in the Greater New York City metropolitan area.” The rating outlook is reflective of Best’s expectation that the company “will maintain risk-adjusted capital that supports the current ratings. Maya’s business plans and operating strategies appear well-conceived, conservative and largely draw upon well-established relationships with its brokers and customers. Having successfully launched Maya in the competitive New York livery vehicle market, management plans to gradually grow and transform it into a diversified commercial lines carrier, which will focus primarily on small and mid-sized businesses in a broader geographic region as opportunities arise. Plans call for initial expansion into commercial automobile insurance, where management believes Maya will be able to leverage its existing infrastructure and technology for efficiently handling underwriting and claims.” Best also noted that, “as a young company, Maya is challenged with above-average risks including the execution of its business plans, limited product and geographic diversification, above-average dependence on reinsurers and the potential for adverse deviation relating to reserves.” As with any recently formed company, Best said it would “closely monitor Maya’s progress to ensure that targeted results are attained and that its capitalization is in compliance with A.M. Best’s standards relative to its ratings.”