KBRA Assigns Ratings to WT Holdings, Inc. and Its Key Operating Subsidiaries

NEW YORK--()--Kroll Bond Rating Agency (KBRA) has assigned insurance financial strength rating (IFSR) of A- with a Stable Outlook to the key operating subsidiaries of WT Holdings, Inc. (WT Holdings) – Stillwater Insurance Company (SIC) and Stillwater Property and Casualty Insurance Company (collectively referred to as Stillwater); Tri-State Consumer Insurance Company (Tri-State); and Evergreen National Indemnity Company (Evergreen). Additionally, KBRA has assigned an issuer rating of BBB- with a Stable Outlook to WT Holdings. WT Holdings is a privately-held, Memphis, Tennessee-based holding company with insurance operations in Jacksonville, Florida; Jericho, New York; and Mayfield Heights, Ohio.

The management team of WT Holdings is responsible for (i) overseeing the insurance subsidiaries (i.e., senior members have board positions on each company); (ii) managing the organization’s capital structure and dividend capacity of the insurers; (iii) evaluating and executing acquisitions or divestitures; and (iv) allocating holding company investments as well as the insurance company asset portfolios (managed by affiliate NFC Investments, LLC). As the primary source of internally generated funds for WT Holdings, dividends have been material – over $50 million in aggregate since 2014. These funds are utilized to service the enterprise’s outstanding debt, which, on a consolidated basis is approximately $115 million for a debt to capital ratio of roughly 28%. KBRA expects WT Holdings to maintain financial leverage in the 25-30% range in the near to medium term. Interest and cash coverage are sound and healthy risk-based capital ratios are being maintained at Stillwater, Tri-State and Evergreen.

Stillwater’s ratings reflect its reasonable underwriting leverage, multi-channel distribution platform, consistent investment income and seasoned management team. Despite an underwriting loss in 2017, KBRA believes Stillwater has fundamentally strong underwriting and financial analytics, with advanced technology for risk selection. As the company underwrites primarily homeowners, auto, and other personal lines of insurance, it is exposed to natural catastrophes. With roughly one-third of direct written premiums coming from California (SIC’s state of domicile), Stillwater experienced significant losses from the recent wildfires. Going forward, KBRA believes Stillwater’s core loss ratios should benefit from the approval and implementation of homeowners and auto rate revisions.

Tri-State’s rating reflects its local market knowledge, disciplined homeowners underwriting selection, low underwriting leverage, and consistent generation of net income. The company has generated favorable operating earnings through strong investment income; however, underwriting income, which had been favorable in prior years, has recently deteriorated. In response, Tri-State has implemented rate increases and introduced credit scoring for personal auto. KBRA believes these actions should improve future core underwriting results. The company’s main products are private passenger automobile (PPA) and homeowners insurance policies. The majority of Tri-State’s writings are concentrated in the five boroughs of New York City, Nassau and Western Suffolk counties. KBRA believes this exposure to catastrophe losses is partially mitigated by a prudent reinsurance program and strict underwriting guidelines as the company’s PPA book is focused on preferred risk classes.

Evergreen’s rating reflects its low underwriting leverage, favorable long-term underwriting results and its knowledgeable and highly-experienced management team in its niche surety business, which focuses on waste sector landfill closure and post-closure bonds. Evergreen employs a boutique approach with strategic surety partners to provide predictability in surety capacity to its clients. This strategy has materialized in long-term operating profitability through prudent underwriting and risk management. As a result, the company’s underwriting performance is highlighted by low loss ratios – reporting a five-year average combined ratio of approximately 80%. In addition, Evergreen has benefitted from the consistent generation of net investment income. KBRA notes that Evergreen’s niche approach results in a product concentration in the waste/landfill sector for surety, which necessitates a strong reliance on reinsurance. Additionally, as top executives are critical to the company’s continued success, KBRA believes key man risk is material.

KBRA also notes that WT Holdings’ insurance companies all maintain elevated levels of below investment grade bond holdings and equity investments relative to surplus as well as to industry peers. KBRA believes that the operating companies’ favorable capital positions – driven by conservative underwriting leverage – allows for a more aggressive investment allocation. Additionally, NFC Investments’ principals have demonstrated an ability to successfully manage through market volatility and meet insurance company liquidity needs over their 25+ year history.

The Stable Outlook reflects KBRA’s expectation that WT Holdings will continue to successfully execute its business strategies by maintaining sound capitalization at the operating subsidiaries, sustaining profitability with conservative underwriting leverage, continuing to manage risk in a prudent manner and maintaining judicious financial leverage and sound coverage metrics.

The ratings are based on KBRA’s Global Insurer & Insurance Holding Company Rating Methodology published on October 10, 2017.

A detailed report will soon be available on www.kbra.com.

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts

Kroll Bond Rating Agency
Analytical:
Fred DeLeon, 646-731-2352
Director
fdeleon@kbra.com
or
Andrew Edelsberg, 646-731-2371
Managing Director
aedelsberg@kbra.com
or
Patrick Curboy, 646-731-2320
Associate Director
pcurboy@kbra.com
or
Carol Pierce, 646-731-3307
Director
cpierce@kbra.com
or
Donna Halverstadt, 646-731-3352
Managing Director
dhalverstadt@kbra.com

Contacts

Kroll Bond Rating Agency
Analytical:
Fred DeLeon, 646-731-2352
Director
fdeleon@kbra.com
or
Andrew Edelsberg, 646-731-2371
Managing Director
aedelsberg@kbra.com
or
Patrick Curboy, 646-731-2320
Associate Director
pcurboy@kbra.com
or
Carol Pierce, 646-731-3307
Director
cpierce@kbra.com
or
Donna Halverstadt, 646-731-3352
Managing Director
dhalverstadt@kbra.com