S&P Affirms ‘BBBpi’ Rating for Maine Employers Mutual Insurance Co.

Standard & Poor’s has affirmed its ‘BBBpi’ counterparty credit and financial strength ratings on Maine Employers Mutual Insurance Co. The ratings reflect its extremely strong capitalization, strong operating performance, and sound reinsurance program offset by high geographic and product line concentration.

Major rating factors

– Capital adequacy at year-end 2002 was extremely strong, with a capital adequacy model of more than 300 percent as measured by Standard & Poor’s model. The company’s surplus stood at $141 million at year-end 2002 compared with $131 million in 2001;

– Operating performance is strong, with an earnings adequacy ratio of 157 percent as measured by Standard & Poor’s and a five-year average return on revenues of 36.6 percent. In addition, the company has controlled its combined ratio (the five-year average combined ratio is 76.1 percent). The company has been increasing its premium revenues consistently since 1998 with a five-year compounded annual growth rate of 17 percent;

– Both excess-of-loss and stop-loss reinsurance programs were maintained during 2002 helping to limit overall exposure. General Reinsurance Corp. is the exclusive supplier on all excess-of-loss layers, and TIG Insurance Co., Zurich Reinsurance (North America) Inc., and General Reinsurance Corp. are used for the stop-loss treaties. However, this reinsurance program was restructured during January 2003, and the stop-loss program has not been renewed.

The company’s geographic and product line concentration is high with Maine accounting for all of the company’s workers’ compensation business. High concentration exposes the company to economic, legal, and regulatory risk and limits the rating.