Ratings agency A.M. Best said it has revised the outlook to “negative” from “stable” and affirmed the financial strength rating of “A- (Excellent)” and the issuer credit rating of “a-” of Frederick Mutual Insurance Co. in Frederick, Maryland.
A.M. Best said the negative outlook is a reflection of Frederick’s consistently negative underwriting income and elevated combined and expense ratios. Net underwriting income has been negative four of the last five years, and the company is expected to produce an underwriting loss in 2014, the ratings agency said.
The company also has a geographic concentration of risk, which leaves it susceptible to adverse weather conditions and has greatly attributed to the volatile operating results of the last five years, according to A.M. Best. Management has implemented a wide range of initiatives, including rate revisions, higher deductibles and policy rewrites, which should help to stabilize results and eventually lessen volatility.
A.M. Best also said the affirmation of the rating is based on Frederick Mutual’s solid capitalization, favorable net investment income and long-standing local market presence.
Net investment income has been favorable, but not sufficient enough to offset underwriting losses, the ratings agency said. Despite significant weather-related events, the company has increased surplus during the last five years, mainly due to positive net investment income, as well as realized and unrealized capital gains. In addition, Frederick Mutual maintains a conservative reserve approach with redundancies on an accident and calendar year basis.
A.M. Best said negative rating actions could occur as a result of a prolonged continuation of adverse operating results and an elevated combined ratio. An upward revision of the negative outlook is contingent upon the company’s ability to improve and sustain favorable operating and underwriting results, according to the ratings agency.
Founded in 1843, Frederick Mutual is a regional mutual insurance company located in Frederick, Maryland. It is currently licensed to serve the states of Maryland and Pennsylvania, offering a wide range of insurance products including homeowners, dwelling fire, personal umbrella, businessowners, artisan contractors, and commercial umbrella, according to the insurer’s website.
Frederick Mutual provides its products through a network of independent insurance agencies. The company reported approximately $27.34 million in premium written last year, according to its management letter for 2013.
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