15 Insurers See Ratings Updates
Berkshire Hathaway, Humana, USAA and 12 others receive updates.
Insurance Networking Ratings Corner, January 22, 2013
A.M. Best, Fitch Ratings, Standard & Poor’s (S&P’s) and Moody’s Investors Service released ratings updates. The following are some of the most recent:
Moody's has downgraded the Insurance Financial Strength (IFS) rating of Assured Guaranty Municipal Corp. (AGM) to A2 from Aa3, the IFS rating of Assured Guaranty Corp. (AGC) to A3, from Aa3, and the IFS rating of Assured Guaranty Re Ltd. (AGRe) to Baa1 from A1. In the same rating action, Moody's also downgraded the senior unsecured debt ratings of both Assured Guaranty US Holdings Inc. and Assured Guaranty Municipal Holdings Inc., to Baa2, from A3. The outlook for the ratings is stable.
Moody’s said the rating action reflects its downward reassessment of Assured's business franchise, expected future profitability, and financial flexibility. Assured operates in an industry that has not recovered from the financial crisis and, like its peers, will continue to struggle in the face of declining fundamentals, including a dramatic reduction in insurance usage, modest profitability and still-meaningful legacy risk.
While the characteristics of Assured's insured portfolio's credit quality and its capital adequacy generally remain strong (based on the data from Sept. 30, 2012), Assured's positioning on key dimensions of financial strength, namely franchise strength, profitability and financial flexibility have weakened over time, largely as a result of enduring changes in the financial guarantor industry, and the broader economic environment as discussed in greater detail in previous Moody's publications.
Fitch has assigned 'A+' ratings to the $500 million of senior unsecured notes issued by Berkshire Hathaway Finance Corp. (BHFC). The notes are guaranteed by Berkshire Hathaway Inc. The 'A+' ratings are equivalent to Fitch's ratings on BHFC's outstanding senior unsecured notes that are guaranteed by BRK.
The issuance of senior unsecured notes consisted of the following: $275 million, 1.6 percent coupon, maturing in 2017, and $225 million, 3 percent coupon, maturing in 2022. Proceeds from the senior notes are to be used to redeem notes maturing this month.
Fitch's ratings on BRK are supported by extremely strong capitalization and market position of its insurance subsidiaries, solid operating performance with good diversification across business lines, and excellent financial flexibility and liquidity.
A.M. Best has downgraded the financial strength rating to C (Weak) from C+ (Marginal) and the issuer credit rating to “ccc” from “b-” of Community Mutual Insurance Co. (Community Mutual). Concurrently, A.M. Best has withdrawn the ratings in response to management’s request to be removed from A.M. Best’s interactive rating process.
The downgrades follow Community Mutual’s continued unprofitable underwriting performance and diminished levels of surplus. In particular, in 2011, statutory surplus declined by 26.6 percent, and, in 2012, it declined by an additional 18 percent. Community Mutual has experienced significant losses attributable to major fires and weather-related events in recent years. The company’s unfavorable operating performance is evidenced by its negative, five-year average pre-tax returns on revenue and surplus.
Although the company's pure loss ratio compared favorably to the personal property composite average on a five-year average basis, elevated loss adjustment expenses and other underwriting expenses contributed to net underwriting losses in each of the last five years. Additionally, Community Murtual’s single-state concentration of risk exposes it to weather-related events as well as to market, regulatory and judicial issues.
Essentia Insurance Co.
Fitch has affirmed the 'A' Insurer Financial Strength (IFS) rating of Essentia Insurance Co. (Essentia), following its acquisition by Markel Corp. (MKL) on Jan. 2, 2013. MKL purchased Essentia, from OneBeacon Insurance Group Ltd., as part of an exclusive underwriting relationship with Hagerty Insurance Agency and Hagerty Classic Marine Insurance Agency (collectively Hagerty). Hagerty offers insurance for classic cars, vintage boats, motorcycles and related automotive collectibles.
Under Fitch's Insurance Rating Methodology, Essentia is 'core' and receives MKL's group IFS rating of 'A'. Essentia's business is a direct complement to MKL's existing specialty business. MKL's ratings were affirmed with a Stable Outlook on Dec. 19, 2012, as follows:
• IDR at 'BBB+'
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