Standard & Poor’s (S&P) placed its “A+” counterparty credit and financial strength ratings on American Excess Insurance Exchange RRG (AEIX), American Diversified Reinsurance Ltd., and Premier Insurance Exchange RRG (PRx)—which are the members of Premier Insurance Group—on CreditWatch with negative implications.
The rating action reflects the increase in severity of claims experience at AEIX, resulting in statutory underwriting losses of $16.6 million in 1999, $26.7 million in 2000, and $5.5 million in the first quarter of 2001. Statutory capital has declined 46 percent to $74.1 million as of March 31, 2001, from $138.4 million at year-end 1998.
Reported results are well below the earnings expectations for AEIX and well below benchmark performance levels at the existing ratings level.
Other rating factors include negative underwriting cash flow and increasingly higher claims experience in the high excess general and professional liability lines written by Premier Insurance Group companies. AEIX and PRx write low-frequency, high-severity covers. Although volatility in operating performance had been anticipated, the magnitude of the impact of recent losses is more than S&P’s expectations and has reduced the companies’ financial strength. S&P plans to meet with management to review the business plans, projected operating performance, and reserve adequacy information. Management believes loss experience will improve following changes in the risk profile of member companies, including the discontinuation of certain policies. The ratings could be lowered materially following this review.
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