S&P Affirms Eastern Casualty Insurance 'BBBpi' FSR

Business Wire, Sept 13, 2000

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

Sept. 13, 2000-- Standard & Poor's today affirmed its triple-'Bpi' financial strength rating on Eastern Casualty Insurance Co. (Eastern).

The rating reflects the company's extremely strong capitalization and operating performance, offset by volatility of earnings and premium revenues.

Based in Marlborough, Mass., the company mainly writes workers' compensation and commercial multi-peril policies. Eastern also acts as a servicing carrier and a voluntary direct-assignment carrier for the Massachusetts Workers Compensation Assigned Risk Pool. All of the company's business lies within Massachusetts.

The company, which began business in 1980, is licensed in Massachusetts, New Hampshire, Rhode Island, and Vermont. It distributes its products primarily through independent general agents.

Major Rating Factors:

-- Capital adequacy was extremely strong at year-end 1999 as measured by
Standard & Poor's capital adequacy model. Leverage, as measured by premium and
liabilities to surplus, was conservative; the 1999 ratio was 1.3 times. The
company's surplus, $151.0 million at year-end 1999, has grown at a compound
annual rate of 56.1% since 1992. A $27.0 million gain in surplus from 1998 was
composed mainly of $18.2 million in unrealized net capital gains and $9.5
million of net income.

-- The company's net income declined by $1.9 million in 1999 compared with
1998. This was caused primarily by a drop of $15.0 million in net underwriting
income, offset by a $7.2 million federal income tax benefit and a $5.7 million
increase in net realized capital gains.

-- Since 1996, operating performance has been extremely strong, with an average
ROR of 25.6%. Returns, however, have been volatile. For example, ROA has varied
from 3.6% in 1999 to 12.6% in 1995.

-- The company displays more volatility in its premium revenues than do
companies receiving a higher rating. Year-to-year changes in net premiums
written have varied from negative 14.7% to positive 41.9% since 1993.

-- The company's two-year reserve development ratio has been favorable but is
also volatile, with an average reserve release of 13.6% with respect to surplus
since 1995. The reported ratios have ranged from 23.9% redundant (negative
development) to 2.3% redundant over the past five years.

-- The company's geographic and product-line concentration is high, increasing
its exposure to economic, legal, and regulatory risks. In 1999, the company's
premiums were $67.8 million with 99.4% of net business in Massachusetts.

Eastern is not affiliated with any other insurance company and is rated on a stand-alone basis. The company (NAIC: 39659) is 100% owned by North American Enterprises Inc., a Massachusetts holding company owned by James A. Radley, who also acts as Eastern's chairman and treasurer.

'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

Copyright 2000, Standard & Poor's Ratings Services