A.M. Best Co. has affirmed the financial strength rating and the issuer credit rating of Co-operators General Insurance Co.

The rating agency also has affirmed the financial strength rating and the issuer credit rating of Co-operators General’s wholly owned subsidiary, The Sovereign General Insurance Co. In addition, A.M. Best has affirmed the financial strength ratings and issuer credit ratings of Co-operators General’s other wholly owned subsidiaries, L’Union Canadienne Compagnie D’Assurances and COSECO Insurance Co.

Concurrently, A.M. Best has affirmed the financial strength rating and issuer credit rating of Co-operators Life Insurance Co. Additionally, the rating agency has affirmed the issuer credit rating and debt rating of on $150 million 5.07% senior unsecured debentures, due July 2012 of Co-operators Financial Services Limited (CFSL), the interim holding company of Co-operators General and Co-operators Life. The outlook for all ratings is stable.

A.M. Best says the ratings of Co-operators General reflect its superior capitalization and strong, liquid balance sheet, positive earnings trend, geographic and product line diversification, effective use of various distribution channels and its experienced management team. The ratings also take into consideration the company’s market leadership position driven by its strong brand name recognition.

Partially offsetting these positive rating factors are the current downturn in the underwriting cycle for commercial lines products, increasing claims frequency and severity, uncertainty of the long-term effects of regulated pricing and product changes for auto insurance and potential earnings volatility from the industry change to fair value accounting.

The ratings of Sovereign, L’Union and COSECO are reflective of their risk-adjusted capitalization relative to their ratings, good overall balance sheet liquidity, positive profitability trends and their strategic roles within the Co-operators group. Sovereign primarily offers mid to small commercial lines coverage through independent brokers across Canada. L’Union serves as Co-operators General’s primary vehicle for distribution of commercial and personal lines products through independent brokers in Quebec, while COSECO offers personal lines products mostly through employer and association groups, as well as on a direct basis. Leverage ratios have improved from strong organic surplus growth while premium risk growth has remained relatively flat. In addition, these companies benefit from cross marketing opportunities and services they receive from affiliated companies.

A.M. Best says these rating strengths are offset in part by Sovereign’s history of reserve deficiencies, moderate exposure to property loss due to earthquakes in western Canada, as well as competitive pricing pressure in its core commercial lines. These concerns are mitigated, in part, by management’s actions to focus on core business by exiting less profitable personal lines and increasing reserves. In addition, surplus is protected by a comprehensive reinsurance program with mainly high quality reinsurers.

The ratings of L’Union and COSECO recognize their respective financial strengths and historically profitable operating performance, their strategic roles within the Co-operators group, as well as each company’s individual challenges within their market niches.

A.M. Best says the ratings of Co-operators Life recognize its increased level of profitability, surplus growth, which has led to a strong risk-adjusted capital position and continued premium growth in its core business segments. It also recognizes the premium growth the company has realized in its core business segments, which offers a wide variety of products to individual, group and credit union markets throughout Canada. Co-operators Life continues to face challenges cross-selling to the property/casualty policyholder base through their multi-line distribution, penetrating the Quebec market, while competing with larger insurance organizations, and strong regional players.