Phoenix Reinsurance Company, Hartford, Conn., 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 assignment reflects the reinsurer's leadership position in the reinsurance property markets, solid capitalization and stable underwriting results. These rating factors are derived from the Phoenix Re's property book of business, which is nearly 100 percent of its total book, and its underwriting strategy of maintaining a global diversification within the United States and in Europe and Asia. Given the current market conditions, the reinsurer's market reputation and expertise will allow it to opportunistically expand its property business.
"Management has recently made a common stock offering at the parent holding company, which contributed over $40 million of the proceeds to the reinsurer, increasing its surplus to over $100 million," said John H. Snyder, senior vice president of Best's property/casualty division. "This financial flexibility allows Phoenix Re to expand its catastrophe capacity during the current period of market distress with reduced market capacity and withdrawal of other reinsurers in the property markets," he said. Somewhat offsetting these strengths is the company's depressed operating earnings in recent years driven by unusual level of catastrophe losses and a reduced level of investment income caused by lower interest rates.
Phoenix Re's underwriting results, with an average combined ratio of 107 over the past five years, compares favorably to the reinsurance sector and illustrates the company's careful management of its global book of property business. Although underwriting results have been relatively stable, overall operating earnings over five years, as evidenced by a pretax return on revenue of 7 percent, are below the reinsurance sector's performance. Due to the company's property focus and expertise, the hardening rates in both the U.S. and foreign markets and the increased invested-asset base from its stock offering should begin to improve earnings. Including the March 1993 capital infusion, Phoenix Re's capitalization remains conservative with $55 million in premium volume assets supported by over $100 million in surplus. Phoenix Reinsurance Company is among the top 35 professional reinsurers in the U.S. with $123 million in total assets.
SCOR Reinsurance Company, New York, 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 three intercompany pool members, led by SCOR Reinsurance Company.
This rating assignment reflects the group's strong capital position, superior long-term operating performance and strong market position as a reinsurer of highly engineered property risks and specialty treaty classes. These positive rating factors are derived from the group's recognized underwriting expertise on technical property risks and specialty treaty classes which generally have less competition and greater potential for favorable underwriting results due to the reinsurer's greater ability to set treaty price and terms. In addition, the group benefits from both the implicit and explicit support of its ultimate parent, SCOR S.A. Paris, as evidenced by two substantial aggregate excess-of-loss reinsurance arrangements as well as supplemental retrocession protection that is provided by the parent.
In April 1993, SCOR's intermediate parent holding company issued a $86.2 million debt offering which will result in a $50 million dollar capital contribution to the group and further enhance its capitalization and market position. Somewhat offsetting these strengths are the depressed underwriting performance and operating earnings that were generated in 1992 due to the group's substantial catastrophe losses. In recent years, the group has expanded its extensive exposure management program to limit its future exposures. In addition, improving rates and terms in the property market should improve underwriting results and operating earnings.
"Excluding the high levels of catastrophes in 1992, the group has produced solid operating earnings with a five-year operating ratio under 85, reflecting favorable underwriting results within its core specialty lines," according to John H. Snyder, senior vice president of Best's property/casualty division. The group is well capitalized, with $206 million in writings supported by over $250 million in surplus, including the $50 million capital contribution from the parent holding company in 1993. In addition the group maintains a conservative investment portfolio with approximately 98 percent of the bond portfolio invested in "A" or higher rated issues. SCOR Reinsurance Group ranks among the top 20 reinsurers in the U.S. with over $786 million in total assets.
Selective Insurance Company of America, Branchville, N.J., was assigned a 1993 Best's Rating of "A+." The group's superior financial strength was affirmed and its rating level of "A+" was unchanged. The rating applies to the group's six intercompany pool members led by Selective Insurance Company of America.
This rating assignment reflects the group's good operating results, expense reduction and state diversification initiative that should further enhance the group's profitability. In addition, the group maintains strong loss reserves and good capitalization. These positive rating factors are derived from management's disciplined underwriting approach and targeting of more profitable rural and semi-rural operating territories within its dominant state of New Jersey (currently 60 percent of its total writings). The group intends to reduce its concentration of voluntary business written in New Jersey and reduce fixed operating costs, which are high relative to its peers. This geographic diversification is reflected in the group's acquisition of the Niagara Exchange Corporation, which added 225 agents, mostly in Western New York. Partly offsetting these strengths are a higher-than- industry average operating leverage and moderate exposure to coastal and winter storms, as evidenced by sizable losses stemming from the December nor'easter and the March 1993 blizzard.
"The Selective Group's underwriting results, with an average combined ratio of 106, over the past five years have been better than the commercial lines industry composite by 3.5 points," said John H. Snyder, senior vice president of Best's property/casualty division. These favorable results were achieved despite taxes and assessments imposed under the New Jersey Fair Automobile Insurance Reform Act and from the Market Transition Facility of New Jersey, which totaled $21.7 million in 1992 and $23 million in 1991. The group operates with a relatively high underwriting leverage and a surplus of $232 million supporting $580 million of written premium. Capitalization is enhanced by a high-quality investment portfolio and significant financial flexibility at the parent holding company with a conservative debt-to- equity ratio of 20 percent. The Selective Insurance Group ranks among the top 75 property/casualty insurers in the U.S..
United State Fidelity and Guaranty Company, Baltimore, M.D., 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 the United States Fidelity and Guaranty Company and two other property/casualty affiliates that fully reinsure with the company.
This rating assignment reflects the group's restructuring and reunderwriting initiatives over the past three years that are improving its profitability, the reduced risk profile of the group's investment portfolio in recent years that has benefited its overall quality and liquidity, and the group's improved capitalization. These positive rating factors are partially offset by continued, though diminished, operating losses of the parent holding company's non-insurance business, as well as by its large debt servicing requirements and resulting in stockholder dividend demands on the group. In addition, the group has relatively low investment yields that will continue in the future, given its substantial sell-off and repositioning of its bond portfolio in 1992.
USF&G's underwriting results, with an average combined ratio of 112 over the past five years, have been worse than the industry by two points. Nonetheless, the group's focus on more profitable markets and products over the past several years, its expense reduction initiatives, and its emphasis on more effectively managing its business have already begun to improve its loss ratio experience and should lead to further improvements in its underwriting results in the future. As alluded to above, the group's liquidity, while modest, has been enhanced by a greater proportion of invested assets being allocated to high-quality, fixed-income securities.
"While the parent holding company's financial leverage is moderate with a 49 percent debt-to-equity ratio, its consolidated earnings did not cover its debt-service requirements in 1992," said John H. Snyder, senior vice president of Best's property/casualty division. "A.M. Best expects, however, improved property/casualty operating profits and diminished losses from non-insurance operations in the future, which should lessen the impact of this financial burden on the group," he said. USF&G ranks among the 25 largest property/casualty insurers in the U.S. with $2.2 billion of net writings supported by $1.5 billion of surplus.
Winterthur Insurance Group, Wilmington, Del., ranks among the 50 largest property/casualty groups with $1.0 billion in net premiums written in 1992, and is comprised of four distinct operating groups. The Winterthur Insurance Group is supported by its strong ultimate parent, Winterthur Swiss Insurance Company, the largest property/casualty underwriter in Switzerland.
General Casualty Group, Sun Prairie, Wis., an affiliated group, was assigned a 1993 Best's Rating of "A++" (Superior). The group's superior financial strength was affirmed and its rating level was raised from "A+" to "A++". The rating applies to three intercompany pool members, led by General Casualty Company of Wisconsin.
This rating assignment reflects the group's conservative operating strategy, outstanding operating performance and extremely strong capitalization. These positive rating factors are derived from management's disciplined underwriting approach, very strong agency relationships and a favorable operating environment in the Midwest, where the bulk of the group's business is generated. In addition, the group has modest exposures to catastrophes that are well managed and protected by catastrophe reinsurance.
"Over the past five years, the group's profitability, with a combined ratio of 100, has outperformed the industry by an average of 10 points driven by its consistently favorable loss results within both its commercial lines and personal lines book," said John H. Snyder, senior vice president of Best's property/casualty division. General Casualty maintains a significant competitive advantage as the leading agency writer in the state of Wisconsin, which represents approximately 40 percent of its total writings. Outstanding capitalization is maintained, with very conservative leverage that is further enhanced by a high-quality investment portfolio. Assets consist of 77 percent investment-grade bonds, while strong loss reserves are maintained. General Casualty has $364 million of net premiums supported by $243 million of surplus.
In addition, Republic Insurance Group, Dallas 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 Republic Insurance Company and five affiliates that fully reinsure with the company.
This rating assignment reflects the group's stable underwriting results, adequate capitalization and strong parent company. These positive rating factors are derived from several strategic initiatives, including product and state diversification efforts, undertaken by management to reduce its concentrated exposure to catastrophes in its predominant homeowners book in its lead state of Texas in recent years. These initiatives were supported by over $300 million of stop-loss reinsurance protection provided by Winterthur Swiss over the last six years. Offsetting these positive rating factors has been the group's below-average profitability, with a five-year pretax return on revenue of 2.1 percent, as well as the group's sizable exposure to catastrophe losses, as evidenced by nearly $60 million of gross catastrophe losses in 1992, which included $47 million related to Hurricane Andrew.
Also, Southern Guaranty Group, Montgomery, Ala., 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.
This rating assignment reflects the group's continued superior operating results with a five-year combined ratio of 102, favorable liquidity, and conservative underwriting leverage. The group's net premium writings of $87 million in 1992 were supported by $51 million of surplus.
Winterthur Reinsurance Corporation of America, New York, was assigned a 1993 Best's Rating of "A" (Excellent). The company's financial strength was lowered from "A+" (Superior) to "A" (Excellent) and its rating level was lowered from "Superior" to "Excellent."
This rating assignment reflects the company's solid capital position, management's conservative operating strategy and strong balance-sheet liquidity. These strengths are a result of its diversified book of business, with 6 percent generated from Canadian operations, 42 percent assumed through a 20 percent quota share agreement with General Casualty, and the balance consisting of a core book of well-established close working relationships with small to medium-sized regional property/casualty companies. In addition, the company has maintained a conservative loss reserve position on its relatively short-tailed casualty book of business, which continues to develop favorably.
Offsetting these positive factors is the company's continued depressed operating earnings that the reinsurer has generated over the past four years, which has been driven by unusual catastrophe losses over the period along with low investment returns. The company has taken corrective actions to limit its catastrophe exposures, and, coupled with the current rate hardening in the property marketplace, should improve the reinsurer's underwriting results and overall profitability in the future.
"Excluding the elevated catastrophe losses in 1992, the reinsurer's normalized underwriting results have been relatively stable over the last five years as evidenced by a five-year combined ratio of 112, which is substantially enhanced by its 20 percent participation in General Casualty's extremely profitable book that accounts for approximately half of its business," Mr. Snyder said. However, overall operating performance has been depressed due to relatively low modest pretax return on revenue of 1.2 percent, compared to the reinsurance sector's 15 percent return. While net leverage has increased by over 100 percent in the last four years due to diminished earnings and dividend payments to its parent, resulting in a relatively static surplus position, the principal factor has been the increased premium volume from the quota share agreement with General Casualty. Winterthur Reinsurance Corporation of America is among the top 20 reinsurers in the U.S. with over $563 million in total assets.