A.M. Best has affirmed the financial strength rating of A+
(Superior) and the issuer credit ratings of "aa-" of California
Insurance Company (San Francisco, CA), Continental Indemnity
Company (Cedar Rapids, IA), Illinois Insurance Company (Cedar
Rapids, IA) and Pennsylvania Insurance Company (Cedar Rapids,
IA). The outlook for all ratings is stable. 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 capitaliation 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:BRKA)(NYSE:BRKB).
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
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.
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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