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S&P Affirms Traders Insurance Co. 'BBpi' Rtg

3 March 2000

S&P Affirms Traders Insurance Co. 'BBpi' Rtg

    NEW YORK--Standard & Poor's--March 3, 2000-- Standard & Poor's today affirmed its double-'Bpi' financial strength rating on Traders Insurance Co.
    This stock company's major line of business is private passenger auto insurance, with an additional specialization in residential property and mobile home programs. Based in Kansas City, Missouri and licensed in Arizona, Indiana, Iowa, Kansas, Missouri, Nebraska, New Mexico, and Oklahoma, this very small insurer (with $5.2 million in surplus in 1998) distributes primarily through managing general agents, and more than 95% of its business is in its major states of operation -- Missouri, Oklahoma, and Kansas. It commenced operations in 1982.
    Although the company is a wholly owned subsidiary of Kansas City Service Center Inc. (formerly Concannon Investment Co., unrated), its rating is based on stand-alone characteristics.

    Major Rating Factors:

-- Operating performance has been marginal, with a five year-average return on revenue of 2.7%. The earnings adequacy ratio of 42.4%, as measured by Standard & Poor's model, is also marginal and below that of companies receiving higher ratings.
-- The $0.7 million drop in net income in 1998 comprised a $0.8 million decline in net underwriting income, offset by an improvement of $0.1 million in net investment income earned. Homeowners' multiple peril business is primarily responsible for the decline, with a loss ratio deterioration of 13.7 percentage points in 1998 to 45.8%.
-- Net premiums written increased 35.4% in 1998 to $6.2 million while surplus decreased 7.9% to $5.2 million. The $0.4 million decline in surplus was mainly comprised of a $0.3 million loss in net income, a $0.3 million dividend to stockholders, and a favorable $0.2 million in net unrealized capital gains.
-- Capital adequacy was extremely strong at year-end 1998, as measured by Standard & Poor's model. The NAIC risk-based capital ratio was also good, at 232.5%, but below the industry median.

    'Pi' ratings, denoted 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. 'Pi' ratings 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.