Ratings Recap: Allianz Global (US), Balboa Group, North Light, Heritage

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit ratings of “aa” of Allianz Global Corporate & Specialty North America (AGCS NA), which includes Allianz Global Risk US Insurance Company, Allianz Underwriters Insurance Company, both based in Burbank, Calif. and AGCS Marine Insurance Company, which is based in Chicago. The outlook for all of the ratings is stable. Best said the ratings are based on its view that “AGCS NA is a strategic cornerstone of the group’s global industrial and specialty lines business, fully integrated into the operation processes of AGCS Global, and as such, has the explicit support of the group’s ultimate parent company, Allianz SE. The ratings also consider AGCS NA’s excellent risk-adjusted capitalization, strong business franchise and solid underwriting and operating performance in recent years.” As offsetting factors Best cited “AGCS NA’s historically poor underwriting performance and the inherent risk associated with the recent growth in premium production. The outlook reflects ongoing support from Allianz SE and Best’s expectation for continued solid operating results over the near term.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Balboa Insurance Group and its P/C members: Balboa Insurance Company (BIC), Meritplan Insurance Company (both domiciled in Irvine, CA) and Newport Insurance Company of Phoenix, Ariz. At the same time Best affirmed the FSRs of ‘A-‘ (Excellent) and ICRs of “a-” of Balboa Life Insurance Company (Irvine, CA), Balboa Life Insurance Company of New York (together known as Balboa Life) and General Fidelity Life Insurance Company (GFLIC) (Columbia, SC). The outlook for all of the ratings is stable. Best pointed out that all of the companies are owned by the BA Insurance Group, Inc., which is ultimately owned by Bank of America Corporation. The ratings and outlook of Balboa “reflect its solid risk-adjusted capitalization, strong underwriting profitability and the organizational, operational and distribution support it derives from being owned by BAC,” Best explained. As offsetting factors Best noted “Balboa’s elevated underwriting leverage, significant aggregate exposure to catastrophe losses and the potential uncertain future within BAC.” Balboa continues to see substantial growth in its lender-placed business through large national independent financial institutions. However, from a business profile perspective, it highlights the group’s dependency upon BAC and other financial institutions for production of its business.” Best also said it “recognizes Balboa’s current ‘available-for-sale’ status, as alluded to in the second quarter 2010 earnings call on July 16, which potentially redefines the group’s strategic importance within BAC. This move reflects BAC’s strategy to narrow the focus of the franchise, ensuring that every activity is core to the bank’s three customer groups—consumers, companies and institutional investors. The ratings of Balboa Life recognize its continued strong levels of risk-adjusted capital, profitable operating results and an investment portfolio that provides a strong liquidity position. Balboa Life also benefits from the business opportunities afforded it through BAC.” Best added that it anticipates that the company will have more opportunities for business expansion through its marketing relationship with BAC. Offsetting these strengths are Balboa Life’s continuing declining premium trends, challenges in penetrating its historic core business due to the downturn in the mortgage market and the modest results from its current strategic marketing initiatives” best added that while it “acknowledges the business opportunities for Balboa Life through BAC, challenges do exist in executing a new business plan in the current business environment. The ratings of GFLIC also are based on continued strong levels of risk-adjusted capital, profitable operating results and an investment portfolio that provides a strong liquidity position. In addition, GFLIC continues to grow net premiums written from assumed credit insurance business aligned to core BAC credit card services. Current assumed business is through a reinsurance arrangement with MBNA Canada and American Banker’s Life Assurance Company. This arrangement has offset the declining trends in credit insurance business for years prior to 2007. A.M. Best anticipates this business will be expanded to other international credit insurance business of BAC. GFLIC’s reliance on a single reinsurance source for nearly all of its business continues to be a concern.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of North Light Specialty Insurance Company, both with stable outlooks. North Light is a wholly owned subsidiary of Allstate Insurance Company (AIC), with both companies having The Allstate Corporation as their ultimate parent. All companies are domiciled in Northbrook, Ill. The ratings are based on “North Light’s solid risk-adjusted capitalization and the operating support provided by the affiliates of Allstate Insurance Group. This operating support is demonstrated by a 100 percent quota share reinsurance contract with AIC for its countrywide business, excluding Florida, although North Light does not currently write business in Florida. Effective October 2010, North Light established a 100 percent quota share reinsurance agreement with AIC for policies written in New Jersey. Operating support also is provided by the same underwriting, pricing and claims infrastructure that is used by Allstate Insurance Group,” best continued. “North Light offers personal lines property coverage on a non-admitted basis for unique, underserved customer segments or those residing in high risk markets such as hurricane, wildfire or earthquake-prone regions. Therefore, the positive rating attributes are partially offset by North Light’s inherent gross catastrophe exposure and execution risk with regard to underwriting, pricing and claims functions on this catastrophe exposed business. Moreover, the gross catastrophe exposure is reduced to a nominal level on a net basis through quota share reinsurance currently provided by AIC. In addition, since North Light’s inception in October 2008, direct premium growth has accelerated on a relative basis but remains tempered due to its conservative risk management practices and underwriting criteria, combined with competitive market conditions.”

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Heritage Indemnity Company of Irvine, Calif. ,both with stable outlooks. The ratings of Heritage reflect its “solid capitalization, favorable operating results and national geographic diversification,” Best explained. “Operations are enhanced by the financial flexibility afforded through Heritage’s ultimate parent, Wells Fargo & Company, one of the largest publically-traded financial services organizations in the United States.” As offsetting factors Best cited “Heritage’s narrow auto warranty product focus and recent trend of declining operating performance driven by increased losses associated with a specific brand of recreational vehicle warranty, which has since been eliminated, and higher underwriting expenses due to larger corporate expense allocations. Heritage writes vehicle service contract coverage throughout the United States, including the District of Columbia.”