Best Upgrades Proformance Ratings

A.M. Best Co. has upgraded the financial strength rating to “B++” (Good) from B+ (Good) and the issuer credit ratings (ICR) to “bbb” from “bbb-“of Proformance Insurance Company. Best also upgraded the ICR to “bb” from “bb-” of Proformance’s holding company, National Atlantic Holdings Corporation. The outlook on all the ratings is stable.

Best explained that Proformance has increased its surplus and reduced its underwriting leverage over the previous five-year period, while National Atlantic has increased its financial flexibility, as “demonstrated by its capital contributions to Proformance of $9 million in 2006 and $43 million in 2005, as a result of an initial public offering.”

The company also received contributed capital from the Ohio Casualty of New Jersey, MetLife Auto & Home and Sentry Insurance transactions, in conjunction with the renewal of New Jersey private passenger automobile, homeowners and associated “umbrella” policies by Proformance.

As a result Best pointed out that Proformance has been able “to lower its dependence on reinsurance and enhance its actuarial, underwriting and claims staff.” It’s also implemented “modest private passenger automobile rate changes, reduced assigned Urban Enterprise Zone (UEZ) business through increased voluntary writings, which have lower loss ratios, and adjusted its tier rating plan and territorial relativities.”

New Jersey’s actions in reforming its private passenger automobile legislation in recent years in order to increase market capacity and promote competition in the state, played a role as well. The legislation has also reduced fraud and lowered the number of uninsured motorists in the State. “As a result of the company’s strategic initiatives and the improved operating environment, its earnings have trended upwards in recent years,” said Best.

There are still some negatives, which Best identified as Proformance’s “unfavorable operating performance earlier in the previous five-year period that was reflective of significant underwriting losses due to poor personal automobile liability loss experience. Loss experience was unfavorably impacted earlier in the period as a result of certain policies written in connection with the aforementioned replacement carrier transactions.
Furthermore, the company has reported historically adverse loss reserve development, although recent development trends appear to be more favorable.”

Best also expressed some concern that, as “Proformance maintains a significant business concentration as a New Jersey writer,” it’s exposed to “market dislocations, legislative and judicial changes and catastrophe events.”