S&P Affirms Sterling Casualty Ins Co 'BBBpi' FSR

    NEW YORK--Standard & Poor's--March 22, 2001-- Standard & Poor's today affirmed its triple-'Bpi' financial strength rating on Sterling Casualty Insurance Co.
    Key rating factors include high common stock leverage and volatile premium revenues and reserves, offset by strong capitalization and good earnings.
    Based in Newport Beach, Calif., Sterling Casualty Insurance Co. (NAIC:42277) writes mainly private passenger auto insurance with a specialization in the nonstandard automobile market. All of the company's business lies within its only licensed state of California. Its products are distributed through independent general agents and brokers including the company's captive broker affiliate, Dashers Insurance Services. The company, which began business in 1982, is wholly owned by H&H Agency Inc., a managing general agency. The company also has a claim services agreements with its affiliate, D&H Claim Service.
    Major Rating Factors:
    -- As of September 2000, the policyholders' surplus declined to $36.8 million or about 18% from $45.1 million at year-end 1999. The company's 1999 unaffiliated common stock leverage was high at 89.1% of policyholders' surplus. The gain in surplus of $11.5 million from 1998 was composed mainly of $7.4 million in net unrealized capital gains and $4.1 million in net income.
    -- The company displays more volatility in its premium revenues than companies receiving a higher rating. Year-to-year changes in net premiums written have varied from negative 39.4% to positive 35.6% since 1993.
    -- The company's two-year reserve development ratio has also been volatile. The reported ratios have ranged from 14.0% redundant (negative development) to 30.1% deficient in the last five years.
    -- At year-end 1999, capital adequacy as measured by Standard & Poor's model remained extremely strong. Leverage as measured by premium and liabilities to surplus is conservative; the 1999 value was 1.0 times.
    -- Operating performance has been good, with the average ROR from 1995-1999 at 7.1%. As of third-quarter 2000, the company reported net income of $5.4 million compared with a net income of $6.4 million for the same time period in the prior year (a drop of $1.0 million). Net income in 1999 was $4.1 million.
    The company is rated on a stand-alone basis.
    Ratings with a 'pi' subscript are insurer financial strength ratings based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a 'pi' subscript are not subject to potential CreditWatch listings.
    Ratings with a 'pi' subscript generally are not modified with "plus" or "minus" designations. However, such designations may be assigned when the insurer's financial strength rating is constrained by sovereign risk or the credit quality of a parent company or affiliated group, Standard & Poor's said. ---CreditWire.