A.M. Best has assigned a financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of "a" to The Dominion of Canada General Insurance Company (Dominion) Toronto, Ontario, Canada. The outlook assigned to all ratings is stable. The rating assignments reflect Dominion’s good risk-adjusted capitalization, excellent brand recognition, established Canadian market presence nationally, but most notably in Ontario, as well as the implicit and explicit support it receives from its new parent, The Travelers Companies, Inc. (TRV) (New York, NY) (NYSE: TRV). Partially offsetting these positive rating factors is the company's fluctuating operating performance resulting primarily from legacy issues within its Ontario Auto business, which pre-date’s current ownership, recent increased competition, competitive market conditions (more legislative in nature in Ontario) throughout its underwriting territories combined with lower investment yields—a product of current financial market conditions, as well as a modest increase in the expense ratio due to a vast array of changes brought about by the company’s new ownership. The positive rating factors are derived primarily from the Dominion’s purchase by TRV, which was finalized in November of last year. Immediate support came in the form of an adverse development contract, finalized in 2013, that partially covers the Dominion’s reserves in all lines in the event of adverse development in its older accident years. This support has greatly benefited the overall risk-adjusted capitalization of the company, which will now be less susceptible to the company’s legacy issues as it moves forward under its new ownership. Although unprofitable in recent years, significant strides have already been made to redirect efforts within the organization to reverse this trend. Dominion has benefited greatly from its new parent’s commitment of resources to reorganizing and streamlining its operation. The parent and subsidiary’s objectives and initiatives will soon be in lock step. These initiatives include continued efficiencies and synergies through integrated business systems, leveraging its expanded product suite and broker network, strengthening underwriting guidelines and claims management practices, as well as mirroring the enterprise risk management practices of the parent company.
Partially offsetting these positive rating factors is variability in the underwriting performance of the company. Underwriting results in the last ten years evidence the risk involved in the Ontario auto marketplace even before the recent times of economic downturns. Historically unfavorable reserve development can mainly be attributed to claims that precede current ownership, but are prevalent in this line. Even with the legislative changes in 2010 in the Ontario auto insurance marketplace, losses continue to develop, shifting to the bodily injury and third party liability lines from the personal accident benefit coverage. However, TRV’s management has committed considerable financial and intellectual resources to improve Dominion’s operations and reserve development. Indications are favorable even though operating performance has yet to reinforce these beliefs due to their recent implementation.A.M. Best does not expect to downgrade or place a negative outlook on the ratings in the near to mid term. Such actions would ensue if Dominion were to have its relationship to its parent and its support change in a manner that affects the operational stance of the company; incur material losses in its capitalization; have a severe reduction in the profitability of its core book of business; or incur severe adverse development within its reserves relative to its peers, as well as the industry's averages. 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. Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.