A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of “a-” of Columbus, Ohio-based State Automobile Mutual Insurance Co. (State Auto) and its operating subsidiaries.
Concurrently, A.M. Best has affirmed the ICR of “bbb-” of State Auto’s intermediate holding company, State Auto Financial Corp. (STFC). The outlook for each rating is stable.
The ratings reflect State Auto’s strong risk-adjusted capitalization, long-standing regional market presence, well-established agency relationships, solid brand name recognition and diversified product offerings. State Auto’s capital position is derived from its sound overall liquidity position, partially offset by above-average underwriting and common stock leverage.
Although the group reported an underwriting loss in 2015, results showed substantial improvement over the prior year. These improved results were driven by fewer winter storm losses and significantly lower reserve development compared to 2014.
The improved underwriting result, coupled with strong investment income, resulted in positive net income of $67 million for the year, the group’s highest reported level of net income in the past five years. The ratings also reflect the financial flexibility and access to capital through STFC, State Auto’s publicly traded intermediate holding company.
State Auto’s negative rating factors include its exposure to localized tornado/hail storms and hurricane activity, as well as its moderately adverse reserve development reported in recent calendar and accident years.
During the earliest years of this latest five-year period, the increased frequency and severity of storm losses adversely impacted State Auto’s underwriting profitability, overall earnings and surplus position. However, these exposures are mitigated through a comprehensive reinsurance program, as well as underwriting initiatives aimed at reducing catastrophe exposures.
Recent calendar and accident year reserve development is being driven by greater than expected losses on specialty lines commercial restaurant and large commercial trucking programs, which are now in run off. To mitigate further adverse reserve development in the commercial restaurant program, the company purchased an Adverse Development Cover with $40 million of coverage at the end of 2014. There are also modestly higher than expected development trends on personal auto bodily injury claims being reported.
The FSR of A- (Excellent) and the ICRs of “a-” have been affirmed for State Automobile Mutual Insurance Company and its following operating subsidiaries:
- State Auto Property and Casualty Insurance Company
- Milbank Insurance Company
- State Auto Insurance Company of Ohio
- Patrons Mutual Insurance Company of Connecticut
- Meridian Security Insurance Company
- State Auto Insurance Company of Wisconsin
- Rockhill Insurance Company
- Plaza Insurance Company
- American Compensation Insurance Company
- Bloomington Compensation Insurance Company
Source: A.M. Best
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