OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Houston Specialty Insurance Company (HSIC) and its 100% reinsured subsidiary, Oklahoma Specialty Insurance Company (OSIC) (Oklahoma City, OK). The outlook for all the above ratings is stable.
Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of HSIC’s subsidiary, Imperium Insurance Company (IIC). The outlook for these ratings has been revised to negative from stable. A.M. Best also has affirmed the FSR of A (Excellent) and ICR of “a” of IIC’s wholly owned subsidiary, Great Midwest Insurance Company (GMIC). The outlook for GMIC’s ratings is stable. All companies are owned by Houston International Insurance Group, Ltd. and are headquartered in Houston, TX. Management advises that it is nearing completion of an additional capital raise, the impact of which will be evaluated after its completion.
The ratings of HSIC and OSIC reflect their improving operating results driven by the newer classes and business written by the member companies to offset the unprofitability of the discontinued book of IIC. The persisting, negative impact of adverse prior year development on the IIC discontinued book on the organization’s operating results and the execution risk involved with building its portfolio with newer classes of business partially temper the positive rating factors.
The ratings of IIC reflect its supportive capitalization and the continued efforts by management to run-off a substantial book of legacy program business, which was acquired through a merger in 2010, but was predominantly cancelled immediately thereafter. The ratings also reflect the progress made in de-leveraging IIC’s balance sheet while taking steps to transform it from a program business writer into a specialty admitted niche company with more non-commodity type business sourced through distribution partners with long standing relationships.
Partially offsetting these positive rating factors is IIC’s high reserve leverage and unfavorable underwriting and operating results, which continues to be skewed by the run-off of its legacy book of business. Although IIC's ratings were affirmed, A.M. Best is concerned about the material prior year adverse loss reserve development that has occurred during the last two full calendar years and into 2013. While management continues to execute the run off of these terminated legacy programs for which the outstanding claim count has been reduced substantially since the merger, the revision of the outlook to negative was primarily driven by the continued impact of unfavorable prior year development on operating results as the remaining liabilities are run off. The negative outlook is likely to remain on IIC’s ratings until these decreasing legacy reserves stabilize.
The ratings of GMIC recognize its role and position within the organization, its continued strong risk-adjusted capitalization position and solid liquidity. Partially offsetting these positive rating factors is the execution risk involved with newer books of business being integrated into GMIC’s portfolio in recent years and the possibility that future operating performance might not be sustained at its excellent historical levels.
The ratings for all the HIIG operating subsidiaries also take into consideration the highly successful track record of HIIG’s Chairman and Chief Executive Officer, Stephen Way, via his extensive experience and relationships within the property/casualty insurance market. In addition, the proven expertise of the other top executives, in addition to the underwriting and claim professionals hired over the past few years also is a positive factor.
Positive changes in the ratings or a revision in any of the outlooks of the HIIG operating entities would occur if HIIG sustains its improved operating profitability, which would lead to increased organic earnings that bolster the risk-adjusted capital position of HIIG’s operating insurers. Potential downward movement in the ratings could result from negative operating trends, additional adverse prior year loss reserve development of the discontinued business impacting any of the entities, but in particular IIC and HSIC, causing a weakened risk-adjusted capitalization.
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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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