OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and issuer credit ratings (ICR) to “a” from “a-” of Southwest Marine and General Insurance Company (Southwest) (Phoenix, AZ). The outlook for both ratings has been revised to negative from stable.
In addition, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of “a” of New York Marine and General Insurance Company (NY Marine) and its majority-owned subsidiary, Gotham Insurance Company (Gotham) (collectively referred to as ProSight Specialty Group) (New York, NY). Concurrently, A.M. Best has affirmed the ICR of “bbb” and debt rating of “bbb” of the $100 million 6.5% senior unsecured bonds due March 2014 issued by ProSight Specialty Insurance Group, Inc (ProSight) (New York, NY). The outlook for these ratings is negative.
The upgrading of the ratings for Southwest is based on its strong level of risk-adjusted capitalization and demonstrated financial stability over a five-year period. Furthermore, the ratings reflect the important role Southwest plays within the ProSight Specialty Group, both as a 5% participant in the group’s existing pooling agreement and through its ability to write both surety and excess and surplus lines in New York on a non-admitted basis, granting the group greater underwriting flexibility.
The ratings of ProSight Specialty Group recognize its solid capitalization, generally favorable operating earnings over a 10-year period and strong market niche position in its core business lines. The group’s historically favorable loss ratio is attributable to its specialty underwriting expertise within its chosen business segments. The ratings further recognize the strength of the management team that was brought to the group with the acquisition by ProSight in 2010, its progress to date in repositioning the business and improving operating performance in 2011 and through the first quarter of 2012.
Offsetting these positive rating factors are Prosight Specialty Group’s elevated expense ratios, limited organic capital appreciation over a five-year period and the risks associated with mortgage-backed bond investments held within the group’s portfolio.
The negative outlook reflects ProSight Specialty Group’s weak 2011 and 2010 operating results, which reflect the run-off of less profitable programs and increased information technology investments, as well as one- time real estate and staffing expenditures. The outlook also reflects the execution risk associated with the management team’s continued efforts to shift the business mix of the group to more profitable industry niches.
Financial leverage at ProSight supports the current rating level, although coverage ratios have been mixed over the last five years. Nonetheless, adequate resources are available at ProSight to cover the required interest payments.
Negative rating actions on ProSight may occur if there is a significant decline in its underwriting profitability and/or a considerable deterioration in its risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio. Alternatively, a revised outlook to stable may be likely with a continued trend in improving its operating results.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; “The Treatment of Terrorism Risk in the Rating Evaluation”; “Insurance Holding Company and Debt Ratings”; and “Catastrophe Analysis in A.M. Best Ratings.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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