Ma status Codes: D=State of domicile L=Licensed R=Licensed for Reinsurance A
Evergreen National Indemnity Company (A.M. Best #: 11556 NAIC #: 12750)
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- FFG Insurance Company (A.M. Best : 11110 NAIC : 43460)
- Florists Mutual Insurance Company (A.M. Best : 03142 NAIC : 13978)
- Gulf Insurance Company (A.M. Best : 02451 NAIC : 22217) Gulf Underwriters Insurance Company (A.M. Best : 11208 NAIC : 42811)
- Mt Hawley Insurance Company (A.M. Best : 02591 NAIC : 37974) RLI Insurance Company (A.M. Best : 04210 NAIC : 13056)
- Medical Liability Mutual Insurance Co (A.M. Best : 03667 NAIC : 34231)
Evergreen National Indemnity Company (A.M. Best #: 11556 NAIC #: 12750) Under Review Rationale: The rating of Evergreen National Indemnity Company has been placed under review with developing implications based on the completed initial public offering of its former parent company, ProCentury Corporation and the termination of the inter-company pooling agreement between Century Surety Company, Evergreen National and Continental Heritage Insurance Company, retroactive to January 1, 2004. In a series of related transactions that occurred just prior to the close of the IPO, ProCentury's ownership of Evergreen National and Continental Heritage was transferred to certain pre-offering shareholders. These shareholders contributed their shares to a newly formed holding company, ProAlliance Corporation. In conjunction with the dissolution of the pooling agreement, all the excess and surplus lines business written by Evergreen National was transferred to Century Surety. Conversely, Century Surety and Continental Heritage transferred all of its landfill and specialty surety business to Evergreen National.
business plans going forward and the spin-off implications affecting all of the companies. As such, developing implications has been assigned. Rating Rationale: This rating is based on the consolidated financial performance of Century Surety Company and its two pool affiliates, Evergreen National Indemnity Company and Continental Heritage Insurance Company. This rating reflects the group's enhanced capitalization, continued accident year underwriting improvement, and excellent liquidity. Century Insurance Group also benefits from its specialty excess and surplus lines orientation, good spread of risk and the benefits to be derived in 2003 from management's pricing initiatives. This rating also takes into account ProFinance Holdings Corp.'s successful trust preferred securities offering issued in the fourth quarter 2002. Proceeds from this $15 million were contributed to Century Insurance Group. In addition, surplus was further bolstered by the partial sale of its subsidiary, Evergreen National Indemnity, which added approximately $10 million of additional capital. These factors are offset by the group's sub par operating earnings over the five year period, continued adverse loss reserve development from prior years and the recent emergence of construction defects claims which, on its own, lowered pre-tax earnings in 2002 by nearly $7 million. Since 1999, transportation business has been the major contributor to the group's underwriting and operating shortfalls. As a consequence, management has exited the transportation and contractor liability lines in 2001, purchased an adverse loss development cover as well as implementing corrective action plans to return Century Insurance Group to historical levels of profitability. While challenged by prior year reserve deficiencies, Century's accident year results, albeit not fully matured, appear to have significantly improved. Lastly, in conjunction with the management led buyout in 2000, Century is required to service holding company debt at ProFinance via stockholder dividends.
The following text is derived from the report of Virginia Surety Group. Rating Rationale: The rating applies to Virginia Surety Company and its affiliate, FFG Insurance Company, which is considered to be a core member of the group. This rating reflects the group's adequate capitalization, historically favorable operating margins, and renewed focus on extended warranty business. These factors are offset by the group's poor results in 2002 and 2003 stemming from a poorly performing apartment liability book written in 2001 and 2002, expenses related to the abbreviated expansion into the specialty commercial insurance market in 2002, and expenses related to the restructuring of the core warranty book. A.M. Best acknowledges Aon's commitment to the group including but not limited to refraining from taking shareholder dividends in 2002 and 2003, and the underlying profitability of the core warranty business. Accordingly, A.M. Best views the rating outlook as stable. The positive rating factors reflect the group's leadership position in the extended warranty marketplace and its proven track record in this market. Historically, the group has consistently enjoyed strong double-digit operating returns. These favorable operating results stem from the group's specialty orientation, extensive database, broad administrative capabilities and competitive expense structure. The group's warranty product offerings include automobile extended warranties, consumer electronics, non-structural homeowners, and specialty products. A.M. Best also recognizes these companies as members of Aon Corporation - one of the world's largest insurance brokerage services organizations.
continued adverse loss reserve development from prior years and the recent emergence of construction defects claims which, on its own, lowered pre-tax earnings in 2002 by nearly $7 million. Since 1999, transportation business has been the major contributor to the group's underwriting and operating shortfalls. As a consequence, management has exited the transportation and contractor liability lines in 2001, purchased an adverse loss development cover as well as implementing corrective action plans to return Century Insurance Group to historical levels of profitability. While challenged by prior year reserve deficiencies, Century's accident year results, albeit not fully matured, appear to have significantly improved. Lastly, in conjunction with the management led buyout in 2000, Century is required to service holding company debt at ProFinance via stockholder dividends.
The following text is derived from the report of Virginia Surety Group. Rating Rationale: The rating applies to Virginia Surety Company and its affiliate, FFG Insurance Company, which is considered to be a core member of the group. This rating reflects the group's adequate capitalization, historically favorable operating margins, and renewed focus on extended warranty business. These factors are offset by the group's poor results in 2002 and 2003 stemming from a poorly performing apartment liability book written in 2001 and 2002, expenses related to the abbreviated expansion into the specialty commercial insurance market in 2002, and expenses related to the restructuring of the core warranty book. A.M. Best acknowledges Aon's commitment to the group including but not limited to refraining from taking shareholder dividends in 2002 and 2003, and the underlying profitability of the core warranty business. Accordingly, A.M. Best views the rating outlook as stable. The positive rating factors reflect the group's leadership position in the extended warranty marketplace and its proven track record in this market. Historically, the group has consistently enjoyed strong double-digit operating returns. These favorable operating results stem from the group's specialty orientation, extensive database, broad administrative capabilities and competitive expense structure. The group's warranty product offerings include automobile extended warranties, consumer electronics, non-structural homeowners, and specialty products. A.M. Best also recognizes these companies as members of Aon Corporation - one of the world's largest insurance brokerage services organizations.
The following text is derived from the report of Florists Mutual Group. Under Review Rationale: The rating of Florists Mutual Group was placed under review with negative implications. The rating action reflects the substantial increase in net underwriting leverage over the past several years resulting from above average growth, reserve strengthening, coupled with only modest internal capital generation. As a result, overall capitalization has weakened and is only modestly supportive of its current rating. Based on the aforementioned, A.M. Best has been informed by management of its plans to raising additional capital via surplus notes. Assuming operating objectives are met and loss reserves stabilize through 2004, proceeds from this surplus note offering should lessen Florists' underwriting leverage and enhance capitalization to a level that more than adequately supports the current rating. The negative implications indicates the risks associated with the capital raising initiative with regard to the amount, time and placement, as well as the challenges the group potentially faces in sustaining its recently improved operating profitability. According to management, the terms of the surplus notes offering have been finalized, subject to regulatory approval. Should Florists successfully execute its planned surplus notes offering, its rating would likely be affirmed, albeit with a negative outlook. Should it be unsuccessful, the rating would likely be downgraded. Rating Rationale: The rating applies to Florists' Mutual Insurance Company and its reinsured subsidiary, Florists' Insurance Company. The rating reflects the group's adequate capitalization, historical operating profitability, improved underwriting results in 2002 and 2003 and the benefits derived from its long-standing reputation and leadership position as the largest independent insurer solely dedicated to the florists and horticultural industries in the United States. These factors are partially offset by the group's modest returns on both revenue and surplus, adverse loss reserve development over the past several years, increased exposure to man-made and natural catastrophes and increased underwriting leverage in recent years. The adequacy of the group's capitalization is derived from its conservative investment and operating strategies along with the strength of its reinsurance partners which somewhat mitigates its credit risk. The group benefits from its niche underwriting expertise and risk management capabilities in addition to customer loyalty. Although national and regional carriers have generated strong competitive pressures in recent years, the group benefits from its excellent reputation as the only insurance entity solely dedicated to the horticultural industry. Underwriting results, although still unprofitable as reflected in the calendar year combined ratio results, improved considerably in 2002 and 2003 as underwriting initiatives and strategies undertaken by management in recent years began to manifest themselves in the results. The strategies included structured rate increases to fortify rate adequacy across different lines of business and types of accounts, and more stringent underwriting guidelines applicable to the workers' compensation and commercial automobile lines that had been trending poorly. Additional initiatives that focused on expense reductions within the underwriting process have also begun to benefit underwriting margins. Despite improved underwriting results in 2002 and 2003, the group's returns remained modest as declining net investment income tempered improved underwriting results. While underwriting margins substantially improved in 2002 and 2003, dramatically improved underwriting margins in commercial auto liability business were largely offset by continued unsatisfactory underwriting results in the group's more dominant workers' compensation and commercial multi-peril lines. In addition, calendar year loss reserve development has been unfavorable in each of the past three years primarily reflecting developing workers' compensation reserves for accident years 1999-2002. Moreover, property losses have been elevated in recent years, also impacting underwriting margins. Over the past five years, the group's underwriting leverage has increased substantially, primarily reflecting substantially increased premium writings -- largely driven by substantial premium rate increases and, to a lesser degree, exposure growth -- and only modest internal capital generation. The group's leadership position and brand name status in its core market have improved in recent years since the trade name Hortica was adopted by the lead carrier, Florists' Mutual Insurance Company, in 2001. Coupled with generally favorable prevailing market conditions, these factors should improve profit opportunities for the group in the near term. Notwithstanding, A.M. Best believes the potential for further adverse loss reserve development may challenge the group in sustaining its improved operating performance.
The following text is derived from the report of Gulf Insurance Group. Rating Rationale: The rating applies to the four pool members of the Gulf Insurance Group and one reinsured affiliate. The rating takes into consideration Gulf's highly specialized and diversified product offerings, historically excellent profitability in many of its core business lines and the benefits derived from being part of The St. Paul Travelers Companies, Inc. (St. Paul Travelers). Gulf also benefits from its highly focused underwriting strategies, generally small to middle market orientation and the group's leadership position in a number of its specialty markets. Offsetting these positive factors is the ancillary status of Gulf within the St. Paul Travelers organization, given its planned move of business to affiliates, its underwriting deterioration and increased earnings volatility over the past several years, as well as its diminished stand-alone capitalization. Best's view of Gulf's stand-alone capitalization considers the group's substantial reserve strengthening in 2002 and 2003, the potential for additional significant reserve strengthening and the credit risk associated with recoverables due from third party reinsurers, including those viewed to be of low credit quality by A.M. Best. Notwithstanding, given Gulf's adequate capitalization and St. Paul Travelers' demonstrated financial support of the group, Best views its rating outlook as stable. The rating contemplates the finalization of an unlimited financial guaranty provided by Travelers Indemnity Company -- the lead company of the Travelers Property Casualty Pool, to Gulf Insurance Company (Gulf Insurance) -- the lead company of Gulf Insurance Group. Concurrently, an amendment to the Gulf inter-company pooling agreement is expected, eliminating Gulf Insurance's retrocession to other pool affiliates. In conjunction with this, all prior liabilities and obligations of Gulf's pooled affiliates will be ceded to Gulf Insurance, and thereby will provide all existing policyholders of Gulf the benefits of the guaranty. The guaranty to be provided by Travelers Indemnity is designed to alleviate any potential business disruption and policyholder concerns while Gulf's business is transitioned to other St. Paul Travelers affiliates during the balance of 2004 and in 2005. In addition to the guaranty, Travelers Indemnity's intent is to continue to fully support the liabilities of Gulf. This is corroborated by its buyout of outside preferred shareholders (Trident II L.P.) in the second quarter of 2004 and an additional $50 million capital contribution it provided Gulf Insurance through Gulf's parent, CIRI, on June 25, 2004. Offsetting these positive factors are Gulf's significant underwriting deterioration over the past several years, particularly in 2003, and level of stand-alone capitalization, which falls short of supporting its current rating. These factors stem from Gulf's weaker than expected operating results in recent years, the challenges associated with its residual value insurance (RVI) business, while taking into account the adverse prior year loss reserve development reported by the group in 2002 and 2003. In 2002 and 2003, Gulf's prior year loss reserves for RVI business and other core businesses, including inland marine and other liability lines, were significantly strengthened. The group's provision for prior year loss reserve development totaled approximately $102 million in 2002 and $514 million in 2003. Concurrent with this reserve strengthening, in 2003, CIRI entered into two long-term borrowing agreements with Travelers Indemnity for the purpose of contributing capital to the company and its insurance subsidiaries, including a $130 million loan in July 2003 and $200 million loan in December 2003. CIRI used the proceeds of these loans to provide additional capital funding of $130 million and $200 million in March and December of 2003, respectively, to Gulf. A.M. Best believes there is potential for additional significant reserve development at Gulf, particularly as it relates to professional liability lines where litigation and loss cost trends have been rapidly rising. Management continues to closely monitor reserve levels. Notwithstanding, since 2001, Gulf management has been implementing aggressive increased pricing and re-underwriting initiatives. At the same time, hard market conditions in the group's core markets are proving highly beneficial in this regard. Lastly, over the years, Gulf's business strategy has remained significantly dependent on its reinsurers, which are an integral part of its success. Notwithstanding, Gulf is susceptible to changes in reinsurance pricing and capacity, particularly in certain product lines that require large limit capacity, as well as credit risk associated with recoverables, including those considered to be of low credit quality. Mt Hawley Insurance Company (A.M. Best #: 02591 NAIC #: 37974) RLI Insurance Company (A.M. Best #: 04210 NAIC #: 13056) The following text is derived from the report of RLI Group. Rating Rationale: The rating applies to RLI Insurance Company and Mt. Hawley Insurance Company and is based on the consolidated operating performance and financial condition of these companies and its separately rated subsidiary, RLI Indemnity Company. This rating reflects the group's sustained operating profitability, excellent capitalization and the financial flexibility afforded by its publicly-traded parent holding company, RLI Corp. These factors are partially offset by the group's high equity leverage, debt servicing obligations (via dividends to RLI Corp.), reinsurance dependence and significant susceptibility to natural and man-made catastrophe losses. In addition, approximately 24% of RLI's overall premium writings is derived from the state of California. Despite these ongoing challenges, A.M.Best views the rating outlook as stable. RLI Group also benefits from its specialty insurance solutions approach, extensive product offerings, and local branch office network. As part of its strategy, RLI provides insurance solutions to market segments that are generally underserved by the standard market due to their unique risk characteristics. Business is written on an admitted and excess and surplus lines basis. Despite intense competition in recent years, RLI continues to demonstrate its ability to generate strong operating results through strict underwriting discipline and rate adequacy. The group also benefits from its high risk, high reward property (difference in conditions) business which, over the years, has provided a disproportionate share of RLI's earnings. Management also attributes a portion of its success to RLI's use of advanced technology, aggregate risk management and its comprehensive reinsurance program, which serves to protect the group's capital base. In addition, RLI has also more than doubled its net premium volume. This, however, is partially mitigated by rising rate levels, increased business retention, and enhanced capitalization via multiple capital contributions made by RLI Corp. in each of the past two years. RLI Corp.'s financial flexibility was demonstrated by its $115 million secondary common stock offering in December 2002 and $100 million senior debt offering in 2003. Until the program became inactive in March 2000, management had utilized reverse repurchase agreements at the operating company level to finance its corporate share repurchase program. Management feels that this financial strategy provides RLI with affordable financing as well as flexibility. The reverse repurchase agreements are secured by high quality assets, which are currently retained at the operating company level and are short-term obligations. Management has no plans to pursue share buy-backs in 2004. Medical Liability Mutual Insurance Co (A.M. Best #: 03667 NAIC #: 34231) The following text is derived from the report of The MLMIC Group. Rating Rationale: The rating is based on the consolidated operating performance and financial condition of Medical Liability Mutual Insurance Company (MLMIC) and its wholly owned subsidiaries, Princeton Insurance Company and OHIC Insurance Company. The rating reflects the group's deteriorated operating performance due to ongoing adverse loss reserve development and resultant weakening of risk-adjusted capitalization. Over the last two calendar years, prior years' loss reserves were strengthened over $600 million, including nearly $200 million in 2003. Furthermore, MLMIC discounts its reserves for loss and loss adjustment expenses, as permitted by the New York State Department of Insurance and as of year-end 2003 the group's discount totaled $544 million, which totaled more than 60 percent of policyholders' surplus. Management has responded to the deterioration in results and capitalization by suspending policyholders' dividends with the exception of dentists, exiting certain lines of business and non-core markets, and the implementation of other significant underwriting actions. The group also restored capacity through third-party reinsurance protection on its on-going medical malpractice business in New Jersey and Ohio to replace existing inter-company quota share reinsurance arrangements. The group continues to pursue premium adequacy and faces unique business risks from its concentration in New York. As such, A.M. Best remains concerned with regards to the adequacy of loss reserves given the significant reserve strengthening and continued adverse severity trends in the New York medical malpractice line of business. Given this ongoing concern and the weakened capitalization of the group, A.M. Best views the rating outlook as negative. 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