A.M. Best Affirms Ratings of California Insurance Company and Its Affiliates; Assigns Ratings to Texas Insurance Company and Pennsylvania Insurance Company

A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of California Insurance Company (CIC) (Foster City, CA), Continental Indemnity Company (Cedar Rapids, IA) and Illinois Insurance Company (Cedar Rapids, IA). The outlook for these ratings is stable. In addition, A.M. Best has assigned an FSR of A+ (Superior) and an ICR of “aa-” to Texas Insurance Company (TIC) (Dallas, TX) and Pennsylvania Insurance Company (Cedar Rapids, IA). The outlook assigned to these ratings is stable. These actions follow the execution of an approved pooling agreement between TIC, CIC and its affiliates. All companies are collectively referred to as North American Casualty Group (NAC).

The ratings reflect NAC’s excellent risk-adjusted capitalization, favorable operating performance since its inception and experienced management team. The ratings also acknowledge management’s prudent operating philosophy, adherence to adequate pricing and reserving discipline, and strategic business plans and projections that call for near-term earnings and capital accumulation. The ratings also consider the historical performance of business produced by its parent company, Applied Underwriters, Inc. (Applied), a leading provider of bundled workers’ compensation insurance and payroll processing services to small and medium-sized businesses. A.M. Best anticipates that Applied will continue to support NAC, allowing the group to maintain a level of risk-adjusted capitalization that remains supportive of its ratings. Lastly, the ratings also recognize the additional financial flexibility and support provided by NAC’s publicly traded ultimate parent, Berkshire Hathaway Inc. [NYSE: BRK.A and BRK.B].

The positive rating factors are somewhat offset by NAC’s relatively limited operating experience and the group’s significant business and geographic concentration risk, operating predominately as a workers’ compensation insurer with limited geographic spread. This concentration exposes operations to a higher level of potential regulatory, judicial, legislative and competitive risks than that of more diversified competitors. Despite these concerns, the outlook reflects the group’s strong level of risk-adjusted capitalization, strong operating results since inception and management’s ability to adapt quickly to new or changing conditions.

While NAC is well-positioned at its current rating level, negative rating actions could result if operating performance falls markedly short of A.M. Best’s expectations, if there is a considerable deterioration in risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio, or if A.M. Best determines that the group’s strategic importance to its parent no longer warrants rating enhancement.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• Analyzing Insurance Holding Company Liquidity
• Catastrophe Analysis in A.M. Best Ratings
• Insurance Holding Company and Debt Ratings
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• The Treatment of Terrorism Risk in the Rating Evaluation
• Understanding BCAR for Property/Casualty Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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