A.M. Best Upgrades Ratings of Pacific Compensation Insurance Company

  A.M. Best Upgrades Ratings of Pacific Compensation Insurance Company

Business Wire

OLDWICK, N.J. -- June 18, 2013

A.M. Best Co. has upgraded the financial strength rating to A- (Excellent)
from B++ (Good) and the issuer credit rating to “a-” from “bbb+” of Pacific
Compensation Insurance Company (Pacific Comp) (headquartered in Agoura Hills,
CA). The outlook has been revised to stable from positive.

The rating actions reflect the additional explicit support provided to Pacific
Comp by its affiliate captive reinsurer, AIHL Re, LLC (AIHL Re), and more
importantly, the additional financial support provided by its parent,
Alleghany Corporation (Alleghany) [NYSE: Y]. Through intercompany reinsurance
agreements effective January 1, 2013, AIHL Re provides Pacific Comp with a
multi-year adverse development cover (ADC) and aggregate stop loss (ASL).
Alleghany stands behind these covers via a $100 million Keep Well Agreement to
AIHL Re, which guarantees the recoverable balances owed to Pacific Comp from
AIHL Re up to $100 million. These funds also are intended to cover the
statutory collateral requirements at Pacific Comp, if and when necessary.

A.M. Best also recognizes the explicit support provided to Pacific Comp by
Alleghany via $105 million in capital contributions since 2007 and the
allocation of resources and corporate governance.

Offsetting rating factors include Pacific Comp’s poor historical underwriting
performance, narrow product focus and geographic concentration as it plans to
organically grow in a competitive California workers’ compensation market.
Despite these inherent challenges, the outlook takes into consideration
changes in Pacific Comp’s leadership, management’s business plans, Alleghany’s
profit tolerances, as well as the strict governance and explicit financial
support provided by Alleghany.

Potential upward rating movement is unlikely in the near term as Pacific Comp
continues to write new business as market conditions improve. Downward rating
movement could result from a decline in Pacific Comp’s risk-adjusted
capitalization to levels not supportive of its ratings, continued poor
underwriting results and any material changes in the support provided by AIHL
Re and/or Alleghany.

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.

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
Rick Barracato, 908-439-2200, ext. 5787
Senior Financial Analyst
richard.barracato@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Joseph Roethel, 908-439-2200, ext. 5630
Assistant Vice President
joseph.roethel@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
 
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