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FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 13, 2014 05:05 PM (EDT)
A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a" of Eastern Alliance Insurance Company, Allied Eastern Indemnity Company, and Eastern Advantage Assurance Company (collectively referred to as the Eastern Alliance Insurance Group) (EAIG) (Lancaster, PA). A.M. Best has also affirmed the FSR of A (Excellent) and the ICR of "a" of Eastern Re Ltd., S.P.C. (Eastern Re) (Grand Cayman, Cayman Islands), a segregated portfolio company. EAIG is wholly owned by Eastern Insurance Holdings, Inc. (EIHI). EIHI also owns 100% of the general common shares of Eastern Re. The ultimate parent is ProAssurance Corporation (ProAssurance) [NYSE:PRA]. The outlook for all ratings is stable.
Concurrently, A.M. Best has affirmed the ICR of "bbb" of EIHI with a stable outlook and has withdrawn the rating following the acquisition of EIHI by ProAssurance in January 2014, and the company's subsequent delisting from the NASDAQ Exchange. Because EIHI has no public debt and is a private interim holding company within the ProAssurance organization, A.M. Best will no longer provide a public ICR to the company.
The ratings of EAIG recognize its supportive risk-adjusted capitalization, strong underwriting and overall operating performance, as well as its well-developed business profile. Furthermore, the ratings benefit from the added financial flexibility afforded by ProAssurance and the superior financial strength of the property/casualty insurance companies that comprise the ProAssurance Group. EAIG provides specialty workers' compensation products and services to employers primarily in rural and suburban Pennsylvania, but also in select states in the Mid-Atlantic, Southeast and Midwest. The members of EAIG also operate under an inter-company pooling arrangement.
Partially offsetting these positive rating factors are EAIG's product line concentration in workers' compensation, geographic concentration in Pennsylvania, below-average investment returns and the execution risk associated with ongoing expansion initiatives. The group remains at risk due to changes in the underwriting cycle. Its expansion into other states has reduced, but not eliminated, exposure to regulatory changes and competitive market conditions within any given state. Moreover, the prolonged low interest rate environment is not expected to change in the near term and should continue to put pressure on investment returns. Despite these concerns, the stable outlook acknowledges EAIG's prudent operating model, focused underwriting strategies, proactive risk-management initiatives and aggressive claims management, which have contributed to historically strong earnings.
Eastern Re's ratings recognize its overall satisfactory stand-alone capitalization and historically profitable operating results, as well as its strategic affiliation with EAIG. The company shares in the risk underwritten by EAIG through inter-company reinsurance, and all companies benefit from common senior management.
These positive rating factors are partially offset by Eastern Re's reliance on EAIG and, prospectively, ProAssuarance, for the production of all its business, as well as the mono-line orientation of Eastern Re, which primarily acts as a workers' compensation reinsurer. Eastern Re is composed of numerous individual segregated portfolio cell companies, each of which provides its own fronting capabilities and reinsurance protection to EAIG. Structurally, Eastern Re issues preferred shares to its individual cell owners. Profit participation by the cell owners provides added incentive to the agent to prevent adverse selection for the business being assumed by Eastern Re.
A.M. Best believes the ratings for EAIG and Eastern Re are appropriately positioned at their present level. Future positive rating actions may result from stronger risk-adjusted capitalization and growth of surplus to support expansion initiatives, and through further demonstration of support from ProAssurance, reflecting the successful execution of its integration and business plans for EAIG and Eastern Re. Factors that could lead to negative rating actions include weakening in capitalization, which could result from a reversal of the group's favorable earnings trend, or from rapid growth if it is not first supported by surplus growth.
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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