A.M. Best Affirms Ratings of Frontier Insurance Co.

Strategic Insights -

A.M. Best Co. recently affirmed the "A-" (Excellent) ratings of Frontier Insurance Co. and its subsidiary, Frontier Pacific Insurance Co., despite facing a significant pre-tax charge of $150 million in the fourth quarter of 1998. The affirmation is based on the company's ability to contain the loss-reserve strengthening charge and maintain strong underwriting profitability in its remaining business. Frontier plans to recapitalize and strengthen its financial management team to support its growth.

Key Takeaways:

  • A.M. Best affirmed the "A-" (Excellent) ratings of Frontier Insurance Co. and its subsidiary, Frontier Pacific Insurance Co., after a review of the group's 1999 business plan.
  • The affirmation is based on Frontier's ability to contain the loss-reserve strengthening charge and maintain strong underwriting profitability in its remaining business.
  • Frontier plans to recapitalize by year-end and purchase reinsurance protection to limit exposure on its downsized medical malpractice book.
  • The company has committed to maintain underwriting leverage commensurate with A.M. Best's "A-" capitalization standards.
  • Frontier has strengthened its control and oversight of its operations by bolstering its financial and actuarial management team.
  • Management has adopted a more conservative reserving philosophy and will maintain reserves at the actuarial best estimate.

Statistics:

  • Frontier Insurance Co.'s surplus will be substantially replenished and exceed $250 million following a capital infusion from its parent holding company.
  • The parent holding company, Frontier Insurance Group, will contribute approximately $60 million from a short-term credit facility into Frontier.
  • Frontier has 150 specialty programs in its remaining business, which has generated strong underwriting profitability.
  • The pre-tax charge of $150 million in the fourth quarter of 1998 includes a $139 million reserve strengthening, an $8 million reinsurance charge, and a $3 million restructuring charge.
  • The negative rating outlook reflects considerable downward pressure on the group's rating.

Sources:

  • A.M. Best Co. press release, dated December 28, 1998
  • A.M. Best Co. Web site: http://www.ambest.com