S&P Affirms Canal Insurance Co./Canal Indemnity Co. ‘Api’ Rating

Standard & Poor’s Ratings Services affirmed its ‘Api’ counterparty credit and financial strength ratings on Canal Insurance Co. and its wholly owned and reinsured subsidiary Canal Indemnity Co.

The ratings on Canal Insurance Co. reflect its extremely strong capitalization, good earnings, and increasing premiums, partially offset by high product line concentration. The ratings on Canal Indemnity Co. are based on the ratings on Canal Insurance Co. Major Rating Factors.

— The company’s capitalization at year-end 2002 was extremely strong, as measured by Standard & Poor’s capital adequacy ratio of about 350 percent. The company is a large player with year-end 2002 surplus of $385.3 million. However, the company’s surplus has been decreasing marginally over the past two years.

— Operating performance is good, with an earnings adequacy ratio of 93.7 percent. The company has a good five-year average return on revenue of 13.2 percent. However, net profits have been very volatile during the last five years, ranging from $29.2 million to $13.3 million. The volatility of the company’s profits limits the rating on the company.

— Premiums earned are consistently increasing at a five-year compounded annual growth rate of 19 percent.

— Product line concentration is very high with all business in the auto segment. However, the company is geographically well-diversified, with only 45 percent of revenue from its primary five states (Georgia, North Carolina, South Carolina, Virginia, and Mississippi).

The companies are members of the Canal Group.

Based in Greenville, S.C., Canal Insurance Co. underwrites insurance for commercial automobile, inland marine, and workers’ compensation insurance, distributed primarily through independent and general agents. The company began operations in 1939.

Canal Indemnity Co., also based in Greenville, S.C., underwrites insurance for commercial automobile business. Its products are distributed primarily through independent and general agents. The company, which began operations in 1974, derives about 90 percent of its business from its major states of operation (Texas, Louisiana, Florida, Colorado, and Washington).