DUFF & PHELPS: THE ORION CAPITAL GROUP CLAIMS PAYING ABILITY RATED 'A+'
CHICAGO, May 19 /PRNewswire/ -- Duff and Phelps Credit Rating Co. has assigned an `A+' (Single-A-Plus) claims paying ability rating to the Orion Capital Companies Intercompany Pool (Orion Capital Group). This rating reflects the group's conservative level of operating leverage, strong positions in well defined markets, conservative management of underwriting risk, and improving financial leverage at the parent holding company. Offsetting these positives are continued adverse development of loss reserves, and aggressive management of the group's investment portfolio which may lead to fluctuations in policyholders' surplus. Members of the Orion Capital Companies Intercompany Pool and their share of the pool are as follows: Security Insurance Company of Hartford (65.0 percent), Employee Benefits Insurance Company (7.5 percent), Design Professionals Insurance Company (7.5 percent), The Connecticut Indemnity Company (10.0 percent), EBI Indemnity Company (5.0 percent), and The Fire and Casualty Insurance Company of Connecticut (5.0 percent). The Orion Capital Group is one of the 75 largest property and casualty insurance groups in the United States with net written premium of $567.0 million during 1992. The six companies that make up the group are all wholly owned subsidiaries of the Orion Capital Corporation, a publicly owned company with shares listed on the New York Stock Exchange. The Orion Capital Corporation, through its insurance subsidiaries, owns a 49.3 percent interest in the Guaranty National Corporation, a property and casualty insurance company which writes non- standard commercial and personal auto insurance. The Orion Capital Group focuses on writing business in specialized niches of the property and casualty insurance market. The lines of business the group writes consist of specialized workers' compensation, architects and engineers professional liability, assumed reinsurance, and specialty insurance programs. The group distributes its products through independent agents and brokers, and managing general agents. The Orion Capital Group has approximately 1,400 employees. Operating leverage of the Orion Capital Group has declined significantly since 1990 as a result of 1) the sale of Guaranty National and 2) higher levels of policyholders' surplus from retention of earnings and increases in unrealized gains. Net written premium to policyholders' surplus was 1.5 to 1 at year end 1992 down from 2.8 to 1 at the end of 1990. Net leverage also improved, 4.3 to 1 at the end of 1992 compared to a net leverage of 7.5 to 1 at year end 1990. During 1992 and continuing through the first part of 1993, the Orion Capital Corporation went through a process of simplifying its capital structure. Debt and preferred stock as a percentage of total capitalization was 39.0 percent at the end of 1992 compared with 54.2 percent at the end of 1991. The proforma debt and preferred stock to total capitalization at the end of April 1993, when the simplification is completed, was 33.4 percent. The Orion Capital Group has experienced a significant amount of upward development in its loss and loss adjustment expense reserves since 1985. Over the period from 1985 through 1992, the adverse development has ranged from $23.1 million to $82.8 million per year. In 1992, the adverse loss reserve development was at its lowest point during the previously mentioned period, with upward development of $23.1 million or 7.7 percent of beginning of year policyholders' surplus. The Orion Capital Group has put in place practices to reduce the potential for adverse reserve development in future years, and while it is perceived that over time these practices will reduce the amount of adverse loss reserve development, in the near term moderate upward development in loss and loss adjustment expense reserves is anticipated. Bonds and short term investments represented 73.5 percent of the Orion Capital Group's unaffiliated invested assets at year end 1992. The company maintains a strategy of investing in non-investment grade fixed income securities to enhance the yield of its bond portfolio. At year end 1992, 9.2 percent of fixed income investments were non-investment grade compared to 13.2 percent at the end of the previous year. There is degree of diversity in the non-investment grade portfolio, with the average investment per issuer of $1.5 million. Common and preferred stocks were 11.0 percent and 9.9 percent of unaffiliated investments at year end 1992. The combined stock portfolios represent 62.3 percent of policyholders' surplus. Since changes in the value of common and preferred stocks flow directly through to surplus for statutory financial reporting, the high proportion of stocks to policyholders' surplus may result in volatility in reported surplus. The Orion Capital Group utilizes a well designed ceded reinsurance program to limit its exposure to large losses. The largest net amount retained by the group for any one risk is $1.2 million. The company's has developed a conservative philosophy of limiting its retention on new programs until a clear track record is established. In aggregate the companies providing reinsurance to the Orion Capital Group appear financially sound, and the group does not appear to have any material credit exposures from uncollectible reinsurance. -0- 5/19/93 /CONTACT: Timothy A. Bienek of Duff & Phelps Credit Rating Co., 312-368-3192/ (OC)
CO: Orion Capital Group ST: New York IN: FIN SU: RTG
WB -- NY055 -- 0300 05/19/93 12:20 EDT
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|Date:||May 19, 1993|
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