Ratings: Concord Group, Mountain States, Atradius Trade Credit, Young America

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a” of Concord Group Insurance Pool and its member companies, Concord General Mutual Insurance Company, Green Mountain Insurance Company, Inc., State Mutual Insurance Company, Sunapee Mutual Fire Insurance Company and Vermont Accident Insurance Company, Inc. All of the companies are headquartered in Concord, New Hampshire. Best explained that the revised outlook “reflects Concord’s “continued unprofitable underwriting results, particularly evident in 2011 as its geographic concentration of property risks in four New England states exposes the company to frequent weather-related events. Nevertheless, Concord continues to maintain a strong risk-adjusted capital position due to its modest underwriting leverage and the mitigation of its catastrophe weather exposure from a severity perspective through the use of a comprehensive reinsurance program. Concord’s established presence in New England enables it to be one of the leading writers of personal lines insurance in that region.” Best also noted that “over several years, management continuously implemented underwriting, pricing and coastal mitigation strategies designed to improve its underwriting profitability. Further downward rating movement could occur if Concord continues to produce unprofitable results.”

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit ratings to “bbb+” from “a-” of Mountain States Insurance Group and its members, Mountain States Mutual Casualty Company, and Mountain States Indemnity Company, and has revised the outlook for all of the ratings to stable from negative. All of the companies are domiciled in Albuquerque, New Mexico. Best said the rating actions “reflect Mountain States’ weakened operating performance in recent years reflective of the earnings drag on its underwriting losses since 2008, combined with its weakened investment yields. While results have been impacted by elevated underwriting expense measures, which increased as premium volumes declined, management anticipates reporting weak operating results over the near term as it may take some time before the benefits from recent initiatives are recognized given the competitive market conditions.” Best also noted that the “ratings reflect the supportive capitalization given the conservative underwriting leverage, which is relative to the commercial casualty composite. The ratings also reflect management’s improved agency outreach initiatives, which should improve visibility within agent offices, and its local market knowledge, which delivered solid results in earlier years. In response to the deterioration in underwriting performance, management implemented tighter underwriting standards intended to reduce claims exposure while non-renewing specific policies with exposure to potential construction defect claims.” Best observed that Mountain States’ “weakened operating performance in recent years is driven by the combined impact of losses associated with construction defect claims in Colorado, adverse reserve development occurring on earlier accident years and an elevated underwriting expense ratio, which remains a focus of ongoing management initiatives. The group also maintains a significant geographic concentration within New Mexico, and to a lesser extent, Colorado, which exposes results to potential changes within the economic, competitive and regulatory environments.” However, Best also indicated that “despite these concerns, the outlook reflects Mountain States’ strong capital position, management’s local market knowledge and expectations of modest improvement in operating performance despite ongoing competitive market conditions. Factors that could result in upward rating movement include a significant improvement in Mountain States’ operating earnings and resulting return on revenue measures, which can be sustained over a period of time. Accordingly, this would improve the company’s ability to generate additional organic surplus growth while strengthening overall capitalization. However, factors that could result in downward rating pressure over the near term include ongoing weak operating earnings due to further deterioration in underwriting performance, which weakens overall capitalization.”

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of Maryland-based Atradius Trade Credit Insurance, Inc. (ATCI) and its wholly owned and 100 percent reinsured subsidiary, Atradius Trade Credit Insurance Company, New Jersey. The ratings reflect ATCI’s “excellent capitalization, dynamic risk reduction efforts, which have improved loss ratio performance, solid market position in the trade credit industry and strong pre-crisis operating profitability,” said Best. The ratings also reflect the “substantial reinsurance protection and access to a global credit analysis infrastructure afforded the group by its parent, Grupo Catalana Occidente, S.A. (GCO) and its affiliates, including the intermediate parent, Atradius N.V.” As partial offsetting factors Best cited “ATCI’s high underwriting expense ratio, the variability in its underwriting results driven by the group’s expense burden and the execution risk associated with profitably growing into its existing infrastructure. While management has implemented a number of initiatives that mitigated the potential for loss during the recent economic downturn, it may take some time to achieve the scale required to profitably sustain the cost of the current reinsurance program.” Best added that the outlook reflects “ATCI’s improved operating earnings,” as well as Best’s expectations that “profitable earnings over the near term will result in additional surplus growth. Negative rating pressure could occur should ATCI’s underwriting results significantly weaken to the point that operating performance falls below Best’s expectations, or the financial condition of GCO weakens.”

A.M. Best Co. has placed under review with negative implications the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Dallas-based Young America Insurance Company, following the announcement on January 9, 2012 of the signing of a definitive agreement between an individual, Fred Gaylon Young, FGY, Ltd and Texas-based EP Loya Group, LP, in which Loya will acquire 100 percent of the equity interests of Young America and certain other affiliates. Best added that the under review with negative implications status also reflects concurrent issues it has “regarding Young America’s current parent company’s elevated financial leverage following significant prior year restatements of its financial statements, as well as the uncertainty associated with potential strategic initiatives Loya may undertake upon acquiring Young America.” Best said the ratings would “remain under review until completion of the transaction, which is expected by the end of the first quarter of 2012, and until Best conducts further analysis and discussions with management. However, in the event that this transaction does not close, the ratings of Young America would likely be downgraded due to the existing financial condition of the company’s current parent company and the potential impact this would have on Young America’s ratings.”

Topics AM Best