OLDWICK, N.J., July 6 /PRNewswire/ -- The A.M. Best Company today released the 14th edition of its 1993 Best's Rating Monitor. Best's Ratings were assigned to 522 property/casualty companies and 116 life/health firms, including Centre Reinsurance Company of New York, Erie Insurance Exchange, The Old Republic Group (property/casualty) and Sun Life Insurance Company of America.
The annual and first-quarter review of 2,455 property/casualty companies followed by the A.M. Best Company has been completed with the distribution of this Monitor. A final Monitor will be released in two weeks, examining the distribution of Best's Ratings, rating issues and industry trends. Annual and first-quarter reviews of life/health companies will be completed next week in Best's 15th weekly release. Best's Ratings are continuously monitored throughout the year with formal rating reviews performed on six- month and nine-month financial results.
Rating rationales for 20 property/casualty and five life/health groups are listed below:
Allianz Life Insurance Company of North America (formerly North American Life and Casualty Company), Minneapolis, Minn., was assigned a 1993 Best's Rating of "A+" (Superior).
Allianz Life is the surviving entity of the June 30, 1993, merger of North American Life and Casualty and Fidelity Union Life Insurance Company, both of which were affiliates under the ownership of Allianz of America, Inc., and had previously operated through a strategic consolidation of their respective operations.
"This rating reflects the company's ongoing stable earnings, high-quality investment portfolio, favorable capitalization, and diverse business profile," said Larry G. Mayewski, senior vice president of Best's life/health division. In addition, the "Superior" rating recognizes the additional strength and support that is provided to the company by its ultimate parent concern, Allianz, A.G., which is one of the largest insurers in the world. Partially offsetting these strengths is the earnings strain that has been produced by the aggressive expansion in the company's variable annuity operations and the increasing reliance on reinsurance to support growth in this area, and the exposure that exists with regard to its medical health insurance operations due to the recent proposals for federal and state health care reform.
Allianz Life offers a well diversified product portfolio, and it has achieved strong market positions in the variable annuity, mass-marketed life and health insurance and individual life segments. In addition, the company has developed strong specialty niche positions in the managed care risk management arena (where it provides risk containment and administrative products and services to health maintenance and preferred provider organizations) and in the life reinsurance marketplace. "Although statutory profits have recently been understated from the strain associated with the aggressive growth in its variable annuity business, A.M. Best believes that the enhanced economies of scale in this line, combined with the administrative efficiencies that are expected to emerge from the recent strategic consolidation and merger, will contribute to greater momentum in earnings and capital accumulation in the near future," Mr. Mayewski added.
Allianz Life maintains a high-quality investment portfolio and strong liquidity position in relation to its business needs. At year-end 1992, the company's investment portfolio was supported by approximately $1.9 billion in investment-grade bonds, cash and short-term securities (76 percent of general account assets). Allianz Life Insurance Company of North America ranks among the 60 largest life/health insurers in the U.S. when measured by total assets.
American Security Insurance Group, Atlanta, Ga., 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. The rating applies American Security Insurance Company and its affiliate, Standard Guaranty Insurance Company.
This rating reflects management's conservative operating strategy, strong capital base and high-quality investment portfolio. These positive attributes are derived from the group's expertise in underwriting financial institution insurance products. Principal products offered consist of both collateral protection and credit insurance that insure the collateral of installment loans from casualty losses, such as automobile physical damage, and insure the timely payment of loans in the event the borrower becomes unemployed. The group's premium production has been adversely affected by the economic recession where unemployment and lack of consumer confidence have caused the demand for credit-related products to sharply decline. The group has responded to the stagnant economy by targeting new sectors of the market, such as regional and super-regional banks. Partially offsetting these positive rating factors were sizeable dividend payments made to the parent company, of $73.7 million which included a $55.7 million noncash dividend of a subsidiary, Superior Insurance Company, to Interfinancial Inc., the parent company. It was deemed no longer necessary for American Security Insurance Company to lend its financial strength and licenses to Superior Insurance Company.
"The group has consistently reported superior profitability with a five-year operating ratio of 87, which is eight points better than the industry norm," according to John H. Snyder, senior vice president of Best's property/casualty division. Capitalization has steadily strengthened due to the decline in premium production with a corresponding increase in policyholders' surplus. A quality balance sheet was maintained as there was little real estate exposure and the market value of the consolidated bond portfolio exceeded book value by $5.3 million at Dec. 31, 1992.
California Casualty Group, San Mateo, Calif., was assigned a 1993 Best's Rating of "A+" (Excellent). The group's financial strength was upgraded from "Excellent" to "Superior" and its rating level was upgraded from "A" to "A+". The rating applies to the four members of the California Casualty Group pool.
The rating reflects management's conservative operating strategy, superior financial performance and strong capital position. These positive factors are derived from strong agency relationships, target marketing to affinity groups as well as an improved operating environment in California where the bulk of premium volume is produced. The group has a competitive expense ratio advantage due to its unique method of acquiring business through direct access to the organization membership lists of three major affinity groups, namely educators, law enforcement and public safety.
"Over the past five years, the group restructured its operations to address the deterioration in its operating results brought about by a period of rapid premium growth, poor underwriting results and the October 1987 stock market crash," noted John H. Snyder, senior vice president of Best's property/casualty division. A more disciplined underwriting approach, as well as a differentiated rate structure for various risk profiles, combined with a deliberate reduction in the volume of business written, enabled the group to record the most profitable year in its 80-year history. In addition, a significant reduction in equity holdings in favor of investment-grade bonds has strengthened liquidity and reduced asset volatility. Capitalization is excellent and is further enhanced by hidden equity in the balance sheet. The market value of the group's bond portfolio exceeded book value by more than $27 million at Dec. 31, 1992.
The group is the 10th largest writer of private passenger automobile coverage in California and ranks among the 100 largest property/casualty writers in the United States, with $324 million in net writings supported by $177 million in surplus.
Centre Reinsurance Company of New York, N.Y., along with its parent, Centre Reinsurance Bermuda Ltd., Hamilton, Bermuda, and its two affiliates, CenterLine Reinsurance Ltd., also of Hamilton, and Centre Reinsurance International Company, Dublin, Ireland, have all been assigned initial 1993 Best's Ratings of "A" (Excellent).
This rating is based on the companies' strategic affiliation as the leading providers of finite risk and related products worldwide. Finite risk reinsurance differs from traditional reinsurance in that the coverage is generally long term and more inclusive, and is designed to protect the underwriting results of an individual company with capped liability assumed by the reinsurer. In addition, finite reinsurance is priced exclusively on the projections of an individual company's losses and cash flows and is not subject to the sharp pricing volatility of traditional reinsurance.
Each contract is underwritten to produce an expected profit within a controllable range, versus traditional reinsurance, whereby a contract is expected to produce a profit but within a much less controllable range as was demonstrated by the large losses experienced by many reinsurers from hurricanes Andrew and Iniki in 1992. The finite risk reinsurance market has grown rapidly in recent years, due to the growing understanding in the insurance industry of the cost-effectiveness and underwriting protection benefits of this product. Much of the increase in the demand for this product has been generated by the educational and marketing efforts of Centre Re itself.
"Since the group's formation in 1986, capital contributions, combined with steady earnings growth, have increased surplus from its initial level of $250 million to an estimated $1 billion at June 30, 1992," said John H. Snyder, senior vice president of Best's property/casualty division. This makes Centre Re one of the world's largest reinsurers. The group is very well capitalized and is approximately 75 percent owned by the Zurich Insurance Company of Switzerland, which is a global reinsurer operating in more than 40 countries with more than $5 billion in capital.
To date, the group has written approximately 200 multi-year contracts that generated $1.1 billion of premium volume in 1992, and are divided between retrospective and prospective coverages. The number of new retrospective contracts written has declined in recent years and only represented 25 percent of the group's premium volume in 1992, versus 70 percent in 1990. The market demand for retrospective contracts has diminished due to anticipated GAAP accounting changes that were finalized in December 1992 with the release of the Financial Accounting Standards Board's pronouncement FASB 113. The new accounting guidelines restrict the recognition of income that retrospective contracts provide to the buyer. However, the accounting changes have also legitimized the marketing appeal of prospective contracts. Best expects that the prospective contract market will expand and represent a large growth opportunity for finite risk reinsurers that are well positioned, like Centre Re, as insurance companies struggle to manage their catastrophe exposures, as well as their ongoing frequency of normal losses.
The group's profitability has been excellent to date with a steady growth in earnings from $12 million in 1988 to $56 million in 1992. Due to the nature of the business, traditional benchmarks of profitability are not appropriate measures due to the large component of investment income that is built into the products design and pricing. A better measure is the total pretax return on earned premium, which was 12 percent. Although this is in line with the average for the reinsurance sector, it is much more stable. In addition, the group's stringent underwriting and actuarial process designs contracts that make a reasonable return under a variety of scenarios, and in the worst case, the maximum loss on any contract is capped at 200 percent of the premium.
Colonial Penn Group, Norristown, PA, was assigned a 1993 Best's Classification of "NA-5" (Significant Change). The group's financial strength rating was affirmed and its rating was unchanged.
"The rating reflects the significant changes that have occurred in the group's operations since Leucadia's purchase of the group in August 1991," said John H. Snyder, senior vice president of Best's property/casualty division. These changes were undertaken to improve the overall operating results of the group and include the replacement of most of senior management, the restriction of new business writings, the reunderwriting of the book of business, the downsizing of operations and personnel and the refocusing of underwriting and marketing efforts towards the market of mature drivers over age 50.
The Commerce Group, Inc., Webster, Mass., was assigned a 1993 Best's Rating of "Qualified A-" (Excellent). The group's excellent financial strength was affirmed and its rating level of "A-" was unchanged.
"This rating reflects the group's good financial performance, strong capitalization and recognized leadership position in the personal lines market of Massachusetts," according to John H. Snyder, senior vice president of Best's property/casualty division. The ultimate parent, The Commerce Insurance Group Inc., is a publicly owned holding company whose principal interest is insurance in the Commonwealth of Massachusetts. The group has produced increasingly profitable operating results with a five-year operating ratio of 81, which is 15 points better than the industry average. The strong earnings have led to a significant increase in surplus over the past five years and have produced adequate capitalization with $221 million of surplus supporting $509 million of net writings.
The group's results are impacted by its participation in the Massachusetts Commonwealth Automobile Reinsurers program (C.A.R.), for which the company is a servicing carrier. All companies writing auto in Massachusetts are required to participate in losses generated by business ceded to C.A.R.. As a servicing carrier, the group is prohibited from denying any insured automobile coverage, but at the same time is permitted to reinsure undesired business through C.A.R.. As a result, ceded leverage measures have historically been higher than the industry norm due to C.A.R. service carrier business, which is risk free. C.A.R. reforms introduced in 1990 in a effort to depopulate the pool have caused the group to significantly increase its retention of direct business written, reducing the level of recoverable due from the facility and bringing ceded leverage measures more in line with industry norms. The Commerce Insurance Group is the largest writer of automobile and second largest writer of homeowners in Massachusetts, serving 700,000 policyholders.
Country Companies, Bloomington, Ind., 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 Country Mutual Insurance Company and two subsidiaries that are reinsured by the company.
This rating reflects the group's superior capitalization, strong historical profitability and favorable liquidity. The companies in the group principally write private passenger automobile, homeowners, farmowners and crop hail insurance, as well as certain commercial lines, including workers' compensation and commercial multiple peril insurance, through an exclusive agency force. The group actively underwrites in selected states that have favorable operating and regulatory environments in the western and midwestern parts of the country with a heavy concentration in Illinois. The group also assumes reinsurance, consisting of mostly property coverage, through the broker market.