A.M. Best has revised the outlook to stable from negative for the financial strength rating (FSR) and issuer credit rating (ICR) of Illinois Casualty Co. (Illinois Casualty) in Rock Island, Ill., while affirming the FSR of B++ (Good) and the ICR of “bbb”.
The revised outlook reflects the company’s improved operating trends as underwriting results have grown less volatile relative to prior periods. Further, future underwriting results are expected to improve on property rate strengthening and the reduction to the company’s historically high loss adjustment expenses.
The negative rating assignment had considered the pending challenges facing management that included the termination of the 20 percent quota share reinsurance arrangements and the required pay down of nearly half the outstanding surplus notes.
These challenges have been met without a material impact to Illinois Casualty’s risk-adjusted capitalization.
The action also reflects A.M. Best’s view that the company’s reserve position is conservative as indicated by its favorable reserve development patterns over the past nine accident and calendar years.
The rating affirmation reflects Illinois Casualty’s solid risk-adjusted capitalization, niche underwriting expertise and favorable loss reserve development since 2006. The positive rating attributes are derived from Illinois Casualty’s underwriting expertise and long-standing position within the restaurant, tavern and package good stores in the Midwest.
The company’s liquor liability writings have produced favorable loss ratios over an extended period demonstrating management’s strong underwriting expertise in this line of business.
These factors are somewhat offset by the company’s historically high expense ratios and its overall weak operating return measures.
Although underwriting results improved significantly in 2014, they have demonstrated some variability over the past five years due in part to increased property related losses. However, favorable 2014 underwriting outcomes reflect the reduction in its property related loss ratio following management’s concerted efforts to improve the loss experience on property related exposures.
The company will be challenged to improve its underwriting and investment expense ratios to better reflect peer composites given its modest size, which compresses overall margins.
Source: A.M. Best
Topics Trends Underwriting Illinois Casualty
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