MOODY'S UPGRADES FREMONT GENERAL'S INSURANCE FINANCIAL STRENGTH RATING AND EXTENDS RATING TO POOL MEMBERS; DEBT RATINGS CONFIRMED
Moody's Investors Service has upgraded the insurance financial strength rating of Fremont Industrial Indemnity Company (formerly the Industrial Indemnity Company) to A3 from Baa2. The financial strength rating of the Fremont American Insurance Company has been withdrawn as that entity has been merged into the lead insurer in the Fremont pool -- Fremont Indemnity Company. Further, Moody's has extended financial strength ratings to the remaining six pool members. In addition, Moody's confirmed the existing debt ratings which include a subordinated debt rating of Ba2 and a rating of the trust preferred securities of Fremont General Financing I at "ba2".
Moody's said that the upgrade of Fremont Industrial Indemnity Company reflects the company's position within Fremont's property & casualty intercompany pool and the group's increasing scale and profitability as a highly-focused specialty underwriter. Ratings of members of Fremont's insurance group also reflect the autonomy of the corporation's insurance operations from its financial services operations, which Moody's sees as being more volatile in risk profile.
In property/casualty insurance Fremont has -- largely through acquisition -- established a national presence as a workers' compensation specialist. Focusing on smaller to medium-sized accounts, Fremont is currently the number one or two writer in California, Illinois, and several other Western states. Fremont has developed a strong track record of staying focused on underwriting and pricing fundamentals which have produced favorable results in an intensely competitive line of insurance. The strength in the company's balance sheet, including its reserve adequacy, was an additional positive rating factor.
Despite these positives, Moody's noted that there are a number of risk factors that affect the company's rating. Among these are Fremont's aggressive funding structure and its business concentration risk. In its insurance operations, Fremont still derives almost two-thirds of its business from California and Illinois. Moreover, the insurance markets in these states (and in workers' compensation generally) have historically been quite volatile. Within the financial services sector (comprising roughly 25% of Fremont's revenue and profit) Moody's will continue to monitor Fremont's aggressive portfolio growth which is of particular import because of its geographic concentration (California) and exposure to below investment grade borrowers.
The following rating was upgraded:
Fremont Industrial Indemnity Company (formerly Industrial Indemnity Company) -- Insurance financial strength toA3 from Baa2;
The following ratings were confirmed:
Fremont General Corporation. -- Subordinated debt at Ba2;
Fremont General Financing I --Trust Preferred Securities at "ba2";
The following new ratings were assigned to the pool members:
Fremont Indemnity Company -- Insurance financial strength of A3;
Fremont Casualty Insurance Co. -- Insurance financial strength of A3;
Fremont Pacific Insurance Co. -- Insurance financial strength of A3;
Fremont Indemnity Co. of the Northwest -- Insurance financial strength of A3;
Fremont Employers' Insurance Co. -- Insurance financial strength of A3;
Fremont Compensation Insurance Co. -- Insurance financial strength of A3;
The rating of Fremont American Insurance Company has been withdrawn as that entity has been merged into the lead insurer in the Fremont pool -- Fremont Indemnity Company
Fremont General, based in Santa Monica, California, is engaged through its subsidiaries in underwriting insurance and in providing diverse financial services to small and medium-sized businesses nationwide. Through its wholly owned subsidiary Fremont Compensation Insurance Group, it is one of the nation's largest underwriters of workers' compensation insurance. Fremont General's financial services business provides residential and commercial real estate lending, asset-based lending, and premium financing. Fremont General reported total assets of $7.4 billion at year-end 1998 and net income of $133 million for the full year 1998.
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