Highlands Insurance Group Responds To Latest A.M. Best Rating And Announces Progress In Addressing American Reliance Computer Problems

A.M. Best Company has advised Highlands Insurance Group, Inc. that the ratings of its subsidiary insurance companies are being revised. The rating of Highlands Insurance Company (HIC) and its subsidiaries is being reduced from A- (Excellent) to B++ (Very Good) while at the same time the rating of its American Reliance Group of companies is being raised from B+ to B++. As a result of this action, all of Highlands' principal operating subsidiaries are now rated B++, a "secure" A.M. Best rating.

``While we are certainly gratified that Best has recognized the improvements in the American Reliance Group by increasing its rating, we are disappointed in the action taken with respect to HIC, which we believe is unwarranted," said Richard Haverland, chairman and CEO of Highlands. "HIC's operations dramatically improved in 1997, when it and its subsidiaries earned $8.9 million on a statutory basis, as compared to a loss of $2.0 million in 1996. HIC's statutory earnings for the first quarter of 1998 were $10.8 million. In addition, its accident year net loss and loss adjustment ratio for 1997 was 74.9%, which was a major improvement over its 1996 accident year ratio of 83.8%.

"Since 1995, HIC's loss reserves have been strengthened by $218 million," Haverland continued. "Reserve studies conducted by HIC's independent actuaries, independent auditors and in-house actuarial staff indicate that the company is adequately reserved. As a result of its earnings in 1997 and the first quarter of 1998, HIC's statutory surplus has risen to $204 million, and its net written premiums to surplus is less than one to one. In addition, its annual investment income is approximately $44 million. We have reduced exposure to catastrophe losses and recently reduced our retention for casualty losses from $1 million to $500,000. We find it difficult to understand why Best took its rating action at this time in view of the operating improvements in the company and improved reserve integrity."

Highlands has also announced substantial progress in addressing the problems it has experienced with the computer system that was introduced in the third quarter of 1997 for the American Reliance Division. All identified critical business issues have been resolved and, in May 1998, American Reliance instituted centralized printing and direct release to producers of most policies being processed on the new system. The issuance backlog of commercial policies has been substantially reduced, the conversion process for personal lines completed, and the entire backlog of personal lines policies eliminated.