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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 08, 2011 12:00 AM (EST)
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 Imperium Insurance Company (IIC) (formerly Delos Insurance Company) and its wholly owned reinsured subsidiary, Houston Specialty Insurance Company (HSIC) (formerly Naxos Insurance Company). IIC and HSIC are jointly known as the IIC Group (formerly Delos Insurance Group). The IIC Group is headquartered in New York, NY.
Concurrently, A.M. Best has removed from under review with negative implications, downgraded the ICR to "a" from "a+" and affirmed the FSR of A (Excellent) of HSIC's wholly owned subsidiary, Great Midwest Insurance Company (GMIC) (headquartered in Houston, TX).
A.M. Best also has removed from under review with negative implications and downgraded the FSR to B+ (Good) from B++ (Good) and ICR to "bbb-" from "bbb" of National Health Insurance Company (NHIC) (Grand Prairie, TX). The outlook assigned to all ratings is stable.
These rating actions follow the December 31, 2010 merger between Southwest Insurance Partners (SWIP) and Lightyear Delos Acquisition Corp, resulting in the formation of Houston International Insurance Group (HIIG) (Houston, TX). HIIG is led by Chairman and Chief Executive Officer Stephen L. Way, the former managing director of SWIP.
The ratings of the IIC Group reflect its solid risk-adjusted capitalization, excellent liquidity and the prospective benefits gained from the liquidity and financial flexibility afforded by HIIG. The ratings also take into consideration management's upcoming business plan and the potential opportunities gained from Mr. Way's successful track record, extensive experience and relationships within the property/casualty insurance market.
Although IIC Group's ratings were affirmed, A.M. Best is concerned about the recent material reserve strengthening that occurred prior to being acquired by HIIG, the installation of the group's new management team and its ability to execute its plan and the near-term effects from a number of terminated programs, which were recently placed into run off. In addition, IIC Group remains challenged to build a profitable book of program business, particularly in the competitive market climate of recent years.
As a member of this newly formed group, the ratings recognize GMIC's role and position within the group, its continued excellent capitalization, historically profitable underwriting results and strong operating results. Offsetting these positive attributes is GMIC's narrow geographic concentration and the execution risk associated with maintaining its historical profitability in light of management's growth plans, which include an assortment of new lines/classes of business. The downgrading of the ICR is a result of GMIC currently being owned by a much larger, lower-rated insurance company.
The ratings of NHIC acknowledge that over the past two years, the company has incurred operating losses in the individual medical business. These losses, combined with the passage of health care reform, led the company to non-renew its book of business, which should be completed by early 2011. The rating downgrades primarily reflect the uncertain long-term direction of the company, as it does not have any recent experience in writing other product lines. While A.M. Best anticipates that additional smaller losses may be incurred in the very near term, NHIC continues to maintain an ample level of risk–adjusted capital.
Additionally, the ratings of NHIC, GMIC and IIC Group recognize the financial flexibility offered by HIIG, reflecting the ultimate parent's solid balance sheet strength and moderate financial leverage, measured at total debt-to-total capital of 26.7%. HIIG's coverage ratios also are in line with A.M. Best's standards. The annual expense to service the outstanding debt of HIIG is expected to be covered by the available cash at the holding company level over the near term.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Rating Members of Insurance Groups"; "BCAR for Life and Health Insurers"; and "Rating Health Insurance Companies." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.