Canadian Underwriter

The Dominion Insurance ‘benefited greatly’ from acquisition by Travelers: A.M. Best

May 23, 2014   by Canadian Underwriter

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A.M. Best Company Inc. announced Friday it has assigned an “excellent” financial strength rating to The Dominion of Canada General Insurance Company, based mainly on the recent acquisition by The Travelers Companies Inc.

That rating is “partially offset” by “legacy issues” with The Dominion’s Ontario auto business, while the entire Travelers group reported “solid returns” despite a “significant exposure” to natural catastrophes and asbestos reserves exceeding $2 billion.

The “positive rating factors” of The Dominion “are derived primarily from the Dominion’s purchase” by New York City-based Travelers, A.M. Best stated in a press release.

In 2013, Travelers acquired Toronto-based Dominion from E-L Financial Corp. Ltd. for $1.1 billion in cash. It announced at the time that the combined organization in Canada will be based in Toronto and referred to as Travelers Canada. Brigid Murphy, who at the time was president and CEO of The Dominion, is now president and CEO of Travelers Canada.

“Although unprofitable in recent years, significant strides have already been made to redirect efforts within the organization to reverse this trend,” A.M. Best stated of The Dominion. “Dominion has benefited greatly from its new parent’s commitment of resources to reorganizing and streamlining its operation.”

A.M. Best added a new “adverse development contract,” finalized last year, “partially covers the Dominion’s reserves in all lines in the event of adverse development in its older accident years.”

The Oldwick, N.J.-based credit ratings firm assigned a financial strength rating of A (Excellent) and an issuer credit rating of “a” to The Dominion. In a separate release Friday, A.M. Best said it had upgraded Travelers’ financial strength rating to A++ (superior) from A+ (superior) and its issuer credit rating to aa+ from aa.

That upgrade also applied to Travelers Casualty and Surety Company of America, Travelers Casualty and Surety Company of Europe Limited and Travelers Insurance Company of Canada (TICC) (Ontario). Those ratings did not apply to either the Massachusetts or Florida subsidiaries of Travelers.  Worcester-based The Premier Insurance Company of Massachusetts got a financial strength rating of A- (Excellent) while Tampa-based First Floridian Auto and Home Insurance Company got an issuer credit rating of a-.

The rating of Travelers Canada reflects the subsidiary’s “risk-adjusted capitalization, favorable underwriting and operating profitability, strong profile as a leading specialty lines writer in the surety and corporate management liability segments, as well as the additional operational support and financial flexibility afforded by Travelers and TRV,” A.M. Best noted.

“Partially offsetting these positive rating factors are the recent increased competition and continued soft market conditions, as well as the modest increase in TICC’s expense ratio due to its projected investments in technology and cost surrounding the entrance into new lines of business.”

Meanwhile, the superior rating assigned to The Dominion is partially offset by  “fluctuating operating performance resulting primarily from legacy issues within its Ontario Auto business, which pre-date’s current ownership,” A.M. Best stated. The Dominion’s performance was also affected by “recent increased competition, competitive market conditions (more legislative in nature  in Ontario) throughout its underwriting territories combined with lower investment yields – a product of current financial market conditions, as well as a modest increase in the expense ratio due to a vast array of changes brought about by the company’s new ownership,” A.M. Best added.

The entire Travelers group, A.M. Best noted, has “significant exposure to natural catastrophes, which was evident in 2011 and 2012, and potential terrorist-related losses,” has reported “solid returns.”

In a recent filing with the United States Securities and Exchange Commission, Travelers reported premiums of US$5.823 billion in the three months ending March 31, 2014, up from US$5.517 billion during the same period in 2013. Its loss and loss adjustment expense ratio dropped from 56.2% in Q1 2013 to 56.0% in Q1 2014. The first-quarter combined ratio dropped 2.8 points year over year, from 88.5% in 2013 to 85.7% in 2014.

“Like other leading carriers within the U.S. property/casualty industry, Travelers remains exposed to the potential development of asbestos and environmental (A&E) liabilities; however, in more recent years, it has seen less adverse A&E reserve development emerge,” A.M. Best stated May 23.

Travelers reported its Q1 2014 net asbestos paid loss and loss expenses were US$45 million, compared to US$43 million in the same period of 2013. 

“Net asbestos reserves were $2.31 billion at March 31, 2014, compared with $2.33 billion at March 31, 2013,” Travelers stated in its SEC filing. “Net environmental paid loss and loss expenses in the first quarter of 2014 were $24 million, compared with $11 million in the same period of 2013. 

At March 31, 2014, approximately 91% of the net environmental reserve (approximately $291 million) was carried in a bulk reserve and included unresolved environmental claims, incurred but not reported environmental claims and the anticipated cost of coverage litigation disputes relating to these claims.”