A.M. Best Co. has removed from under review with negative implications and downgraded the financial strength rating (FSR) to B (Fair) from B+ (Good) and issuer credit ratings (ICR) to "bb+" from "bbb-" of Ocean Harbor Casualty Insurance Company (OHCIC) (headquartered in New York City, NY) and its newly acquired reinsured affiliate, Hawaiian Insurance and Guaranty Insurance Company, Limited (HIG) (Honolulu, HI).
According to a release on June 12, concurrently, A.M. Best has removed from under review with developing implications and affirmed the FSR of B (Fair) and ICR of "bb+" of Great Northwest Insurance Company (GNW) (Indianapolis, IN). These rating actions follow the acquisition by RM Ocean Harbor Holding, Inc. (RMOHHI) on behalf of its primary insurance operating company, OHCIC. The outlook assigned to the ICRs is negative, while the outlook assigned to the FSR is stable.
The ratings and outlook reflect OHCIC's weakened risk-adjusted capitalization following its acquisition of the stock of GNW Holding, Inc. and its two subsidiaries, GNW and HIG. Additionally, the ratings and outlook reflect the January 31, corporate reorganization and divestiture of Safe Harbor Insurance Company into an affiliated stand-alone entity, and GNW Holding, Inc. becoming an intermediate holding company between OHIG and RMOHHI. Due to this restructuring, GNW Holding, Inc.'s ICR of "b" has been withdrawn.
Following the acquisition, OHIG's net underwriting leverage and reinsurance dependence measures increased from the assumed premiums and liabilities and compare unfavorably to its respective composite measures. Additionally, this geographic and product line expansion brings with it additional property exposure to hail and wind perils, potential unfavorable judicial and regulatory changes and competitive market dynamics, which contributed to the group's increased risk profile. Furthermore, although the group has a reinsurance program to mitigate catastrophe losses, it has increased its retained level of risk from catastrophes.
Partially offsetting these negative rating factors is OHIG's five- year operating profitability, albeit declining, which includes the five-year operating results of GNW and HIG.
Operating profitability was derived primarily from the group's conservative bond portfolio, which generated consistent investment income over the latest period and offset underwriting losses. Additionally, OHIG has had favorable loss reserve development primarily from its lead member, OHCIC.
There may be future positive rating and/or outlook changes if OHIG generates sustained operating income that grows policyholders' surplus and increases risk-adjusted capitalization as reflected by Best's Capital Adequacy Ratio (BCAR) capital model.
However, there may be future negative rating actions if the group's operating performance deteriorates and erodes policyholders' surplus or there is a further decline in its risk-adjusted capitalization as reflected by BCAR.
A.M. Best Company is an insurance rating and information source.
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