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/FIRST ADD -- NY051 -- A.M. BEST RATINGS/

;;;;General Accident Insurance Group, Philadelphia, was assigned a 1993 Best's Ratings of "A+" (Superior). The group's superior strength was affirmed and its rating level of "A+" was unchanged. The rating applies to the group's 10 intercompany pool members led by General Accident Company of America.
 This rating assignment reflects management's conservative operating strategies, the group's solid personal and commercial lines market presence in the mid-Atlantic region, superior investment performance and excellent capital strength, despite nearly $750 million of dividends paid to its parent, General Accident Fire and Life Assurance plc, over the last three years. The affirmation also reflects A.M. Best's expectation that General Accident will improve its operating performance in the future. These positive rating factors are offset somewhat by on- going dividend pressures that could further reduce General Accident's surplus position. In addition, the group is moderately exposed to coastal storms, as evidenced by nearly $225 million of gross losses from Hurricane Andrew in 1992. However, General Accident was able to renew one of the industry's strongest reinsurance catastrophe programs in 1993, which should limit future losses retained by the group.
 General Accident's underwriting results, with an average combined ratio of 110 over the past five years, have deteriorated in recent years due to catastrophe losses and increased losses in its commercial casualty book. However, "A.M. Best expects that the company will improve its underwriting results in the future, following its pricing actions, re-underwriting initiatives and efforts to reduce its exposure to catastrophe losses," said John H. Snyder, senior vice president of Best's property/casualty division. In contrast to its national competitors that have downsized or withdrawn from the personal lines business, General Accident has represented a stable market for its independent agents which will enhance its ability to write favorable books of business and execute its corrective action plans.
 The group's capitalization remains excellent, with $2.0 billion of premiums supported by $1.5 billion of surplus in 1992, despite a 25 percent decline in surplus levels since 1989 driven largely by dividends to its parent, including over $230 million dividend paid in the first quarter of 1993. "General Accident was able to fund these dividends from its sizable, appreciated stock portfolio (currently 80 percent of its surplus), and has not cherry-picked its bondholdings," Mr. Snyder said. The group's bond portfolio, largely tax-exempt and corporate issues of long duration, has substantial embedded unrealized gains, currently 17 percent over carried values. A.M. Best expects that the extraordinary level of dividends paid to the parent in recent years should moderate in the future given GAFLAC's improved operating performance and capitalization following substantial operating losses in 1990-1991. General Accident ranks among the top 25 largest property/casualty insurers in the United States with $5.0 billion in total assets.
 Harleysville Insurance Companies, Harleysville, Pa., was assigned a 1993 Best's Rating of "A+" (Superior). The group's superior financial strength was affirmed and its rating level of "A+" was unchanged. The rating applies to the group's seven intercompany pool members, led by Harleysville Mutual Insurance Company.
 This rating assignment reflects the group's successful regional operating strategy, stable underwriting results and good capital position that was secured with a $22 million capital contribution from a secondary stock offering in April 1992 by Harleysville Group Inc., a downstream public holding company. These positive rating factors are derived from Harleysville's regional personal and commercial lines operating companies that have extensive knowledge of local market conditions, loyal agency force and proximity to customers. Partly offsetting these positive rating factors is the group's higher operating leverage and moderate exposure to coastal and winter storms, which together with Hurricane Andrew, generated sizable losses in 1992.
 "While Harleysville's profitability has deteriorated in recent years from catastrophe losses and higher casualty losses, the group's underwriting results continued to modestly outperform the industry, with a five-year combined ratio of 106," according to John H. Snyder, senior vice president of Best's property/casualty division. Historically, however, the group has generated modest operating returns from a lower invested asset base, with a five-year pretax return on revenue of 5 percent . The group's successful stock offering in 1992 will improve its invested asset base as well as support the group's on-going strategy of expanding its network of regional insurers, Mr. Snyder added.
 Over the past 10 years, the group has expanded its core business strategy from its historical mid-Atlantic base operations to the Southeast and New England by acquiring several regional insurance companies with comparable operations. The group operates with relatively high underwriting leverage, tempered by strong loss reserves and a high- quality investment portfolio, with 86 percent of its assets invested. The holding company provides significant financial flexibility, with a conservative debt-to-equity ratio of 10 percent. The Harleysville Group ranks among the top 60 property/casualty insurers in the United States with $726 million of net writings supported by $318 million of surplus.
 Highlands Insurance Group, Houston, was assigned a 1993 Best's Rating of "A" (Excellent). The group's excellent financial strength was affirmed and its rating level of "A" was unchanged. The rating applies to Highlands Insurance Company and four affiliated companies, all of which are reinsured into Highlands Insurance. The ultimate parent, Halliburton Company, is publicly traded and is one of the world's larger and more diversified oil field services and engineering/construction organizations. The Highlands Insurance Group specializes in commercial property/casualty and workers' compensation coverages for commercial insureds with a particular expertise in the energy, engineering and construction industries. Approximately 20 percent of premium income is derived from the parent or other affiliated companies.
 "This rating assignment reflects the group's continued overall profitable operating results and strong capital position. The group's operations remained profitable during 1992 despite approximately $300 million of gross losses associated with Hurricane Andrew," said John H. Snyder, senior vice president of Best's property/casualty division. On a net basis, after reinsurance, this loss was reduced to a much more manageable $7 million.
 Results also were adversely impacted by a reduction in the carrying value of a U.K.-based subsidiary due to large underwriting losses in the London market and considerable movement in currency rates. During 1992, the group reduced premium volume by approximately 40 percent . This decline was attributable to several factors including an intentional reduction of California business, a move to high deductible programs for Texas workers' compensation coverages and a stop-loss reinsurance arrangement entered into during the year. As a result, the group's capitalization position became more conservative with $257 million of surplus supporting $195 million of net writings. However, reinsurance recoverables were very high at almost three times surplus. A considerable portion of this recoverable is the result of reinsurance associated with Hurricane Andrew claims. In July 1992, the parent announced its intention to withdraw from the insurance business through the sale of the Highlands Insurance Group. To date, no such agreement had been reached.
 Kentucky Farm Bureau Group, Louisville, Ky., ranks among the top 110 property/casualty groups in the United States with over $275 million in 1992 net premiums written. The group is comprised of two companies, Kentucky Farm Bureau Mutual Insurance Company and The FB Insurance Company, which specialize in personal lines coverages for Farm Bureau members in the state of Kentucky.
 Kentucky Farm Bureau Mutual Insurance Company, Louisville, Ky., was assigned a 1993 Best's Rating of "A++" (Superior). The company's superior financial strength was affirmed and its rating level was raised from "A+" to "A++."
 This rating assignment reflects the consolidated results of the company and its wholly owned subsidiary, The FB Insurance Company. "The group has consistently reported superior operating experience throughout the underwriting cycles as evidenced by the favorable five-year average combined and operating ratios of 101 and 89, respectively," said John H. Snyder, senior vice president of Best's property/casualty division. These positive rating results were largely achieved through very low operating expenses from efficient operations, strong growth in investment income and sponsorship of the Kentucky Farm Bureau Federation. This association helps facilitate the group's marketing efforts and its retention of business.
 In addition, the group operates in a very favorable regulatory environment, which has permitted adequate rates and has no problematic residual markets. Operations are conducted exclusively in Kentucky with a well-managed spread of risk among the state's 120 counties. The group's catastrophic exposures are well protected by a strong reinsurance program and a very strong capital position.
 Also, The FB Insurance Company, Louisville, Ky. was assigned a 1993 Best's Rating of "A+"(Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged. This rating assignment reflects the company's profitable operating results, low leverage and sound liquidity positions, particularly in the last two years.
 Mercantile & General Reinsurance Company of America, New York, was assigned a 1993 Best's Rating of "A-" (Excellent). The company's excellent financial strength was affirmed and its rating level was lowered from "A" to "A-".
 This rating assignment reflects the company's adequate capitalization, conservative operating strategy and good balance sheet liquidity. In addition, the rating reflects the recent capital support provided by its ultimate parent, through the contribution in late 1992 of Mercantile and General of Canada, with a carrying value of $34 million. This contribution tempered the company's surplus drain following Hurricane Andrew. Offsetting these positive rating factors is the company's inconsistent underwriting results, culminating in a substantial underwriting loss of over $75 million in 1992, due to substantial losses on its predominant property treaty book.
 "The company has taken several corrective actions to limit its exposures to catastrophes, although it will maintain a modest ongoing exposure," according to John H. Snyder, senior vice president of Best's property/casualty division. In recent years, the reinsurer has been refocusing its book of business to reflect a more concentrated casualty position targeting high excess and umbrella coverages. "This refocusing, coupled with improving rates and terms in the property market, should improve operating results of the company in the future," Mr. Snyder said.
 The reinsurer's underwriting results in 1992 were extremely poor, generating a combined ratio of 173, due to substantial catastrophe losses. Excluding the capital support from its parent, surplus would have declined over 45 percent in 1992, as compared to the actual 17 percent decline. Despite the reduction in surplus, the company's capitalization remains adequate with $107 million in premium supported by $90 million in surplus. Mercantile & General Re ranks among the top 25 professional reinsurers in the United States with over $367 million in total assets.
 Motorists Mutual-American Hardware Group, Columbus, Ohio (formed as of Jan. 1, 1993), ranks on a pro-forma basis among the largest 100 property/casualty groups with over $400 million in net premiums written in 1992 and is comprised of two formerly independent operating groups, Motorists Mutual Group and American Hardware Group, which recently merged their two operations and will pool their respective books of business retroactive to Jan. 1, 1993.
 Members of the newly created pool, Motorists Mutual Insurance Company, American Hardware Mutual Insurance Company and American Merchants Casualty Company, have been assigned a 1993 Best's Rating of "A" (Excellent). This rating reflects the financial strength of the ongoing pool with $400 million of net premiums supported by over $230 million of surplus. "A.M. Best anticipates that the combination of the regional organizations will provide much broader underwriting diversification (both by lines of business and geographic location) and will eventually yield operational efficiencies and reduce the group's expense ratio," said John H. Snyder, senior vice president of Best's property/casualty division. As part of the merger, the American Hardware companies have been redomesticated to Ohio.
 Prior to the recent affiliation, the American Hardware Group's operations had been impacted by substantial reserve strengthening and large losses from the prior management's expansion plans. Moving into new states and utilizing managing general agents led to a 56 percent decline in capital since year-end 1990. In addition, the group had experienced many weather related losses as well as development on losses established in mid-1980s and subsequent years. Motorists Mutual Group had experienced excellent results over many years on the predominantly private passenger automobile lines written in Ohio and contiguous states. All business at Dec. 31, 1992, is the responsibility of the originating underwriting group as are the loss reserves. Substantial reinsurance protection has been acquired by American Hardware to secure any further adverse loss reserve developments.
 The affiliation agreement of the two groups calls for Motorists Mutual Insurance Company and the members of the American Hardware Group to enter into a reinsurance pooling agreement, effective Jan. 1, 1993: Motorists Mutual, 77 percent ; American Hardware Mutual, 20 percent and American Merchants Casualty Company, 3 percent. Motorists will be responsible for the management and operations of the pool. All necessary approvals have been received.
 In addition, MICO Insurance Company, Columbus, Ohio, was assigned a 1993 Best's Rating of "A" (Excellent). The non-standard auto carrier's excellent financial strength was affirmed and its rating level of "A" was unchanged.
 National Home Life Assurance Company, Jefferson City, Mo., was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
 This rating assignment reflects the company's strong earnings performance, its high-quality investment portfolio, favorable capitalization and the overall financial strength and diversified business profile of its ultimate parent, Capital Holding Corporation. This rating also acknowledges the strong presence National Home Life has built in the direct response distribution market. "National Home Life's group operations, which include life, accident and health and annuities, historically has generated favorable earnings results and represented the vast majority of total net operating gains over the past five years," according to Larry G. Mayewski, senior vice president of Best's life/health division. However, in 1992, operating profitability declined substantially from the reported prior-year levels. This decline was principally due to significant reinsurance activity, primarily
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Publication:PR Newswire
Date:Jun 1, 1993
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