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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - APRIL 19, 2013 12:00 AM (EDT)
A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of the subsidiaries of Meadowbrook Insurance Group, Inc. (MIGI) (Southfield, MI) [NYSE: MIG], which operate under an intercompany reinsurance pooling agreement, collectively referred to as Meadowbrook Insurance Group (Meadowbrook). A.M. Best also has removed from under review with negative implications and affirmed the ICR of “bbb-” of MIGI. The outlook assigned to all ratings is negative. (See below for a detailed listing of the companies and ratings.)
These rating actions are in follow up to A.M. Best’s October 19, 2012 press release and take into consideration some of the remedial actions taken by MIGI since its third quarter 2012 earnings announcement and reserve charge. This includes capital enhancements through the monetization of investments, quota share reinsurance (surplus relief) and the termination of certain underperforming books of business. A.M. Best also considered management’s guidance in 2013 and MIGI’s expectation to restore profitability and capital via retained earnings, as well as MIGI’s recent capital raise that occurred on March 18, 2013, where it sold in a private offering an aggregate principal amount of $100 million of its cash convertible senior notes due 2020. After completion of the offering, $70 million of capital was contributed to Meadowbrook. This allowed for risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) to return to more historical levels and allows for a cushion during periods of modest operating profitability. Despite the issuance of these notes, the projected debt-to-capital score will remain within A.M. Best’s guidelines.
The negative outlook reflects the execution risk in Meadowbrook meeting its business plans in the near term. A.M. Best will continue to monitor Meadowbrook’s capitalization to ensure that it remains within an acceptable range for its current ratings. A.M. Best also will continue to watch the recent adverse loss experience on the newer programs on Meadowbrook’s overall operating performance, particularly the workers’ compensation business. A.M. Best expects that given the extensive review of its reserve base, no material adverse development will be recorded going forward. In addition, operating performance should be positively impacted by the recent rate increases on certain business classes as well as the elimination of business that has been deemed unprofitable in the future.
Positive rating actions for Meadowbrook are unlikely in the near term. Key factors that could result in negative rating actions include deterioration in the financial strength of its ultimate parent, MIGI, a significant or sustained decline in its risk-adjusted capitalization, further material adverse development in its reserves or prolonged unprofitable underwriting and operating results.
The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for the following Meadowbrook Insurance Group, Inc. subsidiaries:
· Star Insurance Company
· Century Surety Company
· Savers Property and Casualty Insurance Company
· ProCentury Insurance Company
· Williamsburg National Insurance Company
· Ameritrust Insurance Corporation
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.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.