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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 25, 2011 12:00 AM (EST)
A.M. Best Co. has revised the outlook to stable from positive and affirmed the financial strength rating of B+ (Good) and issuer credit rating of "bbb-" of North Sea Insurance Company (North Sea) (Long Beach, NY).
The ratings reflect North Sea's solid risk-adjusted capitalization, modest overall earnings generation and solid liquidity.
The positive rating factors are offset by North Sea's high expense ratio, pockets of modest adverse loss reserve development and the challenges associated with being geographically concentrated in the New York metropolitan region, which exposes it to a highly litigious environment and catastrophic events, both natural and man-made.
The revised outlook reflects poorer than expected underwriting results in 2010, due in part to lower than expected premium volumes, as soft market conditions have had a significant negative impact on North Sea's market space with regards to pricing and terms and conditions. While expectations remain for North Sea's results to improve over the long term, as operational support and expense synergies are realized by it being part of Lancer Financial Group, Inc. (its parent company), continuing soft market conditions will continue to strain underwriting results 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: "Rating Members of Insurance Groups"; "Understanding BCAR for Property/Casualty Insurers"; "Natural Catastrophe Stress Test Methodology"; "The Treatment of Terrorism Risk in the Rating Evaluation"; "A.M. Best's Ratings & the Treatment of Debt"; "Equity Credit for Hybrid Securities"; and "Risk Management and the Rating Process for 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.