Markel Group, Evanston, Ill., was assigned a 1993 Best's Rating of "A-" (Excellent). The group's financial strength was upgraded from "Very Good" to "Excellent" and its rating level was upgraded from "B++" to "A- ". The rating applies to Evanston Insurance Company, the lead member of the Shand/Evanston group, and two affiliated companies that operate under a reinsurance pooling agreement.
"This rating reflects the group's good profitability, management's controlled and focused underwriting and good capital position," said John H. Snyder, senior vice president of Best's property/casualty division. These rating factors are derived from the group's new ownership in 1987, which has focused the organization into a leading specialty underwriter of professional liability coverages. In addition, the new owners have strengthened the company's balance sheet and surplus has increased 424 percent since 1987. Steps taken include a reorganization in 1990, the sale of the nurses professional liability program, the sale of the governmental program division, the sale of certain Markel Rhulen Underwriting program business and the group's increased premium retention and restructuring of its reinsurance program with use of more highly rated reinsurers. Offsetting these positive rating factors are a high level of non-investment-grade bonds held in the group's investment portfolio, which represented approximately 25 percent of surplus, high operating leverage and an aggressive level of financial leverage at the holding company.
The group's 1992 operating results were favorably affected by the sale of the governmental division, which produced a $13.8 million net gain. The sale resulted in improved liquidity and capitalization. Gross leverage remains high relative to peers due to 1986 and prior operating conditions, whereby extensive reinsurance was utilized. Reinsurance recoverables are in excess of four-times surplus. However, they are well collateralized and are slowly declining in magnitude. Management intends to aggressively commute much of these old reserves. Financial leverage at the parent company, Markel Group, is high with a debt-to-equity ratio of 92 percent. The Markel Group reported net written premiums of $155.9 million in 1992, supported by surplus of $122.7 million.
In addition, Essex Insurance Group, an affiliated group, 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 Essex Insurance Company and Richmond Insurance Company, which is reinsured by Essex.
This rating reflects Essex Insurance Company's good capitalization, which is enhanced by conservative loss reserves and a conservative investment portfolio. These positive rating factors are derived from the company's demonstrated expertise within the excess and surplus lines market and excellent underwriting performance. Offsetting these positive rating factors is the aggressive level of financial leverage at the parent holding company level.
Over the past five years, the company has generated excellent operating results with average combined and operating ratios of 79, and 63, respectively, which are significantly better than the industry average. Liquidity and leverage measures have outperformed the industry norms in recent years. Adding to the overall leverage, however, is the high debt-to-equity ratio of the parent holding company, Markel Group Inc., which was 92 percent at the end of 1992. The Essex and Richmond Companies had net written premiums of $43.8 million supported by $34.6 million of surplus at year-end 1992.
Merrill Lynch Life Insurance Company, Little Rock, Ark., was assigned an initial 1993 Best's Rating of "A" (Excellent). This rating reflects the company's conservative capitalization, high-quality investment portfolio, efficient and profitable operations and its strong position within the Merrill Lynch family of companies.
"The Merrill Lynch Life Companies benefit greatly from their affiliation with Merrill Lynch & Co," according to Larry G. Mayewski, senior vice president of Best's life/health division. The life companies distribute variable life and variable annuities, and market- value-adjusted annuities through the Merrill Lynch brokerage network, thus providing the life companies with a captive distribution network. This dedicated sales force results in greater persistency than that of products written through an independent sales network and will assist the insurance group in its shifting sales focus towards variable products. In addition, the affiliation with Merrill Lynch & Co. results in expense efficiencies and synergies such as access to Merrill Lynch & Co.'s vast customer base and to the parent company's asset management expertise. The rating also acknowledges the strong commitment from Merrill Lynch & Co. and the insurance group's role in the firm's asset gathering strategy.
Somewhat offsetting these strengths are the insurance group's limited operating focus in the increasingly competitive individual annuity market and the substantial investments in collateralized mortgage obligations and mortgage-backed securities. In the next two years, a significant amount of fixed-account liabilities will reach the end of interest-rate guarantee periods. The rating recognizes the challenges facing management in converting these fixed-account contracts to variable products, while effectively managing cash flows in today's interest-rate environment. However, the insurance group has a high- quality, highly liquid investment portfolio, which should be more than adequate to meet the anticipated level of surrenders.
In addition, ML Life Insurance Company of New York, Princeton, N.J., was assigned an initial 1993 Best's Rating of "A" (Excellent). This rating reflects the company's conservative capitalization, high-quality investment portfolio, efficient and profitable operations and its strong position within the Merrill Lynch family of companies.
North American Life Assurance Company, North York, Ontario, was assigned a 1993 Best's Rating of "A" (Excellent). The company's financial strength was downgraded from "Superior" to "Excellent" and its rating level was downgraded from "A+" to "A."
This rating reflects North American Life's strong position in the Canadian association group market, the favorable outlook for its variable annuity subsidiary in the United States, the company's favorable surplus position and overall good quality of the bond portfolio. Offsetting these strengths are the company's modest earnings levels, the increased competitive challenges facing the company's individual life segment and potential earnings pressures from the company's commercial mortgage exposure.
"Earnings in recent years have been trending downward, reflecting restructuring charges and adverse underwriting experience," said Larry G. Mayewski, senior vice president of Best's life/health division. "Furthermore, 1992 earnings declined significantly, primarily as a result of asset write-downs due to declining real estate values," he added.
The rating also reflects the challenges facing the company as it develops its revised marketing strategy in the Canadian individual life marketplace. Earnings are expected to gradually improve over the next several years, as the company continues its expense reduction strategies. In addition, the company's large exposure to Ontario commercial mortgages exposes the company to potentially more asset write-downs in the future.
Through its varied business units, North American Life is well positioned to improve earnings and capital generation. The company maintains a dominant position in the Canadian association group market, which provides the company with significant cross-selling opportunities. Also, in order to increase productivity in the saturated Canadian individual life insurance market, the company has implemented a sound strategy of marketing individual insurance products to specialized niches. In addition, the company's United States variable annuity subsidiary leaves North American Life well positioned to take advantage of the growing variable annuity market there.
Due to its strategic role as a subsidiary of North American Life, North American Security Life Insurance Company, Dover, Del., was assigned a 1993 Best's Rating of "A" (Excellent). The company's financial strength rating was downgraded from "Superior" to "Excellent" and its rating level was downgraded from "A+" to "A."
Northwestern National Life Insurance Company, Minneapolis, was assigned a 1993 Best's Rating of "A" (Excellent). The company's excellent financial strength was affirmed and its rating level of "A" was unchanged.
This rating reflects Northwestern National Life's favorable earnings results, the overall quality and performance of the company's investment portfolio, its good liquidity position and improving risk-adjusted capitalization. This rating also acknowledges Northwestern National Life's well-established position in the individual and group markets, the expense reduction program undertaken during 1992, which is expected to enhance earnings performance, and the strength of its distribution sources. Partially offsetting these strengths is the company's reduced but ongoing exposure to non-investment-grade securities and commercial mortgage loans which A.M. Best believes will pressure earnings performance over the near term, and the challenge Northwestern National Life faces in balancing profitability with surplus accumulation and stockholder and debt servicing obligations.
"Northwestern National Life's stable and profitable individual and group life operations have enabled the company to generate statutory operating gains totalling $233.2 million since year-end 1987," said Larry G. Mayewski, senior vice president of Best's life/health division. Although this profitability has been largely offset by realized and unrealized losses on its bond and real estate related investments over this period of time, improved earnings performance and surplus contributions received from its parent company over the past two years has enabled surplus funds to advance 52 percent. While Northwestern National Life has an above average exposure to non-investment-grade securities and commercial real estate investments, A.M. Best believes these balance-sheet exposures are manageable and does not expect future investment losses to weaken capitalization.
At year end, Northwestern National Life's liquidity position was supported by investment-grade bonds, short-term securities and cash balances of approximately $1.7 billion. Northwestern National Life ranks among the 70 largest life/health insurers in the United States when measured by total assets.
Northern Life Insurance Company, Seattle, a subsidiary of Northwestern National Life, 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. Northern Life specializes in the sale of tax sheltered annuity contracts to education professionals. The company has substantially reduced its exposure to below-investment-grade bonds and non-performing mortgage loans since year-end 1990, and at year-end 1992 represented less than 5 percent of total assets. To further strengthen the company's financial position, it is anticipated Northwestern National Life will make a contribution to the surplus funds of Northern Life during the third quarter of 1993.
In addition, the North Atlantic Life Insurance Company of New York, Jericho, N.Y., was assigned a 1993 Best's Rating of "A" (Excellent). The company's excellent financial strength was affirmed and its rating level of "A" was unchanged.
Republic Western Insurance Company, Phoenix, AZ, 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 reflects the company's outstanding financial performance, solid capital position and strong balance-sheet liquidity," said John H. Snyder, senior vice president of Best's property/casualty division. The company's ultimate parent, Amerco, is a Nevada corporation with transportation and manufacturing interests, including U-Haul International. The company has recorded consistently strong operating results with a five-year operating ratio of 82, which is 14 points better than the industry norm. Approximately 45 percent of the company's business is related to affiliated rental operations, including U-Haul customers, fleetowners and other rental industry insureds, which provide a stable and profitable base of business. Favorable underwriting results also reflect the company's low expense ratio as 50 percent of the business is provided on a direct basis through its affiliated U-Haul locations.
Strong profitability has enabled the company to increase surplus 75 percent since 1987, despite substantial stockholder dividends being paid. The company is well capitalized with $124 million in surplus supporting $116 million in new writings. The company also maintains a very liquid balance sheet with $336 million invested in a high-quality bond portfolio.
USAA Group, San Antonio, Texas, 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 United Service Automobile Association and its affiliates, USAA General Indemnity Company and USAA Casualty Insurance Company.
"This rating reflects the group's outstanding operating results and capital position," said John H. Snyder, senior vice president of Best's property/casualty division. The group's 1992 operations were impacted by Hurricane Andrew and a net operating loss was reported, but over the past five years the operating ratio averaged 97. The group has generated strong earnings, while surplus increased by 62 percent over the past five years to over $3 billion due to sizable investment gains in addition to net operating earnings. Balance-sheet liquidity is very good and was enhanced by over $380 million of cash flow in 1992. The group, which specializes in providing personal lines coverages to active, former, and retired military officers and their families, is the fifth largest private passenger insurer and fourth largest homeowners writer, as well as the 11th largest overall property/casualty group in the country with $8 billion in assets.
Western National Life Insurance Company, Amarillo, Texas, was assigned a 1993 Best's Rating of "A" (Excellent). The company's excellent financial strength was affirmed and its rating level of "A" was unchanged.
"This rating reflects Western National Life's strong earnings performance in recent years, its favorable balance-sheet quality, good liquidity position and adequate capitalization," according to Larry G. Mayewski, senior vice president of Best's life/health division. This rating also acknowledges the improved financial position of the Conseco group of life insurers during 1992, as well as that of its ultimate parent company, Conseco Inc. Partially offsetting these strengths is Western National Life's concentrated focus on and the interest-sensitive nature of its individual annuity businesses and the relatively aggressive (although improved) capitalization of the wholly-owned insurers of Conseco Inc.
Western National Life Insurance Company, together with its affiliated life carriers, National Fidelity Life Insurance Company, Lincoln American Life Insurance Company and Bankers National Life Insurance Company, its immediate parent, form the wholly-owned life insurance operations of Conseco Inc. Western National Life, the group's primary operating entity, accounted for the vast majority of