A.M. Best Affirms Ratings of Balboa Insurance Company and Its Subsidiaries

  A.M. Best Affirms Ratings of Balboa Insurance Company and Its Subsidiaries

Business Wire

OLDWICK, N.J. -- January 24, 2013

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and
the issuer credit ratings of “a” of Balboa Insurance Company (Irvine, CA)  and
its wholly owned subsidiaries, Meritplan Insurance Company (Irvine, CA) and
Newport Insurance Company (Phoenix, AZ), which operate under an intercompany
reinsurance pooling agreement, collectively referred to as Balboa Insurance
Group (Balboa). All companies are owned by the BA Insurance Group, Inc., which
is ultimately owned by Bank of America Corporation (BAC). The outlook for all
ratings is stable.

The rating affirmations take into consideration Balboa’s continuing business
activities, its status as an active insurer of lender-placed insurance
products, while also considering Balboa’s ongoing transfer of lender-placed
and other business to QBE Insurance Group Limited (QBE) (Australia), which
began in 2011 and should continue through 2013.

These ratings also reflect the solid levels of capital maintained by Balboa
during this business transition period as well as the quota share reinsurance
in place with QBE during this transition period. Per the terms of the
reinsurance contracts, QBE Insurance Corporation (QBEIC) (New York, NY), a
subsidiary of QBE, the non-operating parent holding company of the QBE group
of companies, provides each company with 100% quota share reinsurance. The
reinsurance contracts, effective April 1, 2011, generally cover all
liabilities arising from contracts of insurance or reinsurance issued by
Balboa before June 1, 2011, or those issued by the insurers after June 1, 2011
at the direction of QBEIC.

Additionally, Balboa benefits from contractual agreements with a BAC affiliate
and QBE for the support they provide to fully service Balboa’s policyholders
during the period when its portfolio is being transferred, as QBE continues to
develop the extensive systems capabilities needed to support the demands of
the portfolio of lender-placed insurance. Balboa will continue to receive
considerable back office support from a BAC affiliate and QBE to service the
business that it writes and has written on a direct and gross basis.

Offsetting these positive attributes is Balboa’s diminishing business profile
as it moves closer to being inactive and possibly placed into run off once the
transfer of its lender-placed and other business to QBEIC is completed. In
addition, Balboa is exposed to a significant amount of credit risk given its
100% reinsurance cessions to QBEIC. This credit risk, however, is tempered by
the high credit quality of QBE.

At present, there is no potential for upward movement on the ratings of Balboa
given its diminishing business profile and the expectation that its
subsidiaries will be in run off beginning sometime in 2014.

Possible negative pressure on the ratings and/or a revised outlook is likely
as the transfer of business nears completion and the companies move closer to
a possible inactive run-off status. Other negative pressures could result from
Balboa’s significant credit exposure to QBE and any unforeseen dividend
demands from BAC that could materially affect the capitalization of these
insurers.

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.

Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more information,
visit www.ambest.com.

       Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Co.
David Blades, CPCU, 908-439-2200, ext. 5422
Senior Financial Analyst
david.blades@ambest.com
or
Joesph Roethel, 908-439-2200, ext. 5630
Assistant Vice President
joseph.roethel@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
 
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