Ratings: Safety Group, Virginia Farm, New Mexico Casualty, Mennonite Mutual

March 27, 2014

A.M. Best has upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating of ‘A’ (Excellent) for the subsidiaries of Safety Insurance Group, Inc.: Safety Insurance Company, Safety Indemnity Insurance Company and Safety Property and Casualty Insurance Company, collectively known as Safety Group. Best has also revised the outlook for the ICRs to stable from positive; the outlook for the FSR is stable. All companies are domiciled in Boston, Massachusetts. Best has also upgraded the ICR rating to “bbb+” from “bbb” of Safety’s publicly traded holding company, Delaware-based Safety Insurance Group, Inc., and has revised the rating outlook to stable from positive. Best said the “rating actions reflect Safety’s solid risk-adjusted capitalization, historically strong operating performance and its market position as a leading personal automobile writer in Massachusetts. The ratings also acknowledge the group’s favorable loss reserve development and low investment leverage. As a partial offsetting factor Best cited “Safety’s concentration of business in Massachusetts, which primarily is in the private passenger automobile line. The group’s homeowners’ writings have provided some product diversification; however, this does create greater property catastrophe risk. Nevertheless, Safety does continue to maintain an effective reinsurance program to help mitigate the effects of severe weather-related events.” Best indicated that “Safety’s ratings could experience positive rating movement by producing consistently favorable earnings while maintaining strong risk-adjusted capitalization. However, the ratings and outlook may come under negative pressure if an unfavorable earnings trend develops causing its capital to erode.”

A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of ‘B++’ (Good) and issuer credit rating of “bbb” of Virginia Farm Bureau Mutual Insurance Company and its direct and indirect subsidiaries, Countryway Insurance Company, Virginia Farm Bureau Fire and Casualty Insurance Company and Virginia Farm Bureau Town and Country Insurance Company. All of the companies are domiciled in Richmond, Virginia, except Countryway, which is domiciled in Syracuse, New York. The ratings “are based upon the group’s supportive risk-adjusted capitalization, historically positive earnings and a sound personal lines business profile in the state of Virginia,” Best explained. “In addition, capitalization and earnings performance significantly improved in 2013. Strong earnings in 2013 were attributed to underwriting profits, which were mainly due to underwriting initiatives, rate increases and fewer severe storm losses.” As a partial offsetting factor Best noted the “unfavorable profitability measures over the last five years due to significant underwriting losses primarily attributed to severe weather-related events in 2011 and 2012. These results were accentuated by an overall concentration in underwriting risk in the state of Virginia and a persistently low interest rate environment, which is putting pressure on investment returns. In addition, surplus was adversely impacted in 2012 by an accounting change for pension liabilities.” Best explained that it has revised the outlook on the group’s ratings “to stable from negative due to better than anticipated strengthening in capitalization and operating performance.” Best also said it “believes that the initiatives implemented by management to reduce risk and improve earnings in recent years are significant and should produce long-term benefits.” In addition Best indicated that the “ratings could be further stabilized by a longer positive earnings trend. The ratings may be considered for a positive outlook, which may lead to a ratings upgrade as a result of a sustained period of better than average underwriting performance while strengthening risk-adjusted capitalization. However, pressure may be put back on the outlook or ratings as a result of weakening in capitalization, a return to unprofitable underwriting or overall earnings losses.”

A.M. Best has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of New Mexico Mutual Casualty Company (NMMCC) and its five property/casualty subsidiaries, collectively referred to as New Mexico Mutual Group (NMMG), with each operating under a 100 percent quota share agreement with NMMCC. Best has  also assigned an FSR of ‘A-‘ (Excellent) and issuer credit ratings of “a-” to New Mexico Safety Casualty Company (NMSCC) and New Mexico Security Insurance Company (NMSIC), following the recent state approval of a 100 percent quota share agreement between NMSCC, NMSIC and their parent, NMMCC. Both NMSCC and NMSIC were incorporated in 2013 to provide additional tiering and pricing flexibility. The outlook assigned to all ratings is stable, and all companies are domiciled in Albuquerque, New Mexico. Best said the ratings affirmations “reflect NMMG’s strong risk-adjusted capitalization, trend of profitable operating performance and its established market position. As a lead writer in the New Mexico workers’ compensation market, it is able to maintain a strong policyholder retention rate, favorable spread of risk through its agency representation and achieve a greater depth of data and information, enabling the group to respond more effectively and quickly to the changing dynamics of the market. The group also benefits from its tax-exempt status.” As partial offsetting factors Best cited “NMMG’s weakened underwriting performance beginning in 2008, driven by rising loss costs, competitive market conditions and an increased level of large losses. In addition, adverse loss reserve development was experienced on prior accident years related to the group’s voluntary business. Further offsetting the positive rating factors is NMMG’s concentration risk as a single state, mono-line workers’ compensation insurer, which exposes results to legislative, regulatory and competitive risks. Lastly, movements in Washington, D.C. that are focused on tax-exempt organizations could potentially impact the federal tax-exempt status of certain state funds such as NMMG.” In conclusion Best said the while the outlook for all ratings remains stable, “factors that could lead to a positive outlook include a sustained improvement in underwriting performance and a stabilization of prior year loss reserve development while maintaining strong overall risk-adjusted capitalization. Factors that could result in downward rating pressure include continued soft market conditions and underwriting deterioration that results in NMMG’s underwriting and overall profitability underperforming its peers; the erosion of surplus to an extent that causes its risk-adjusted capitalization to no longer support its ratings; and an increase in the magnitude and frequency of reporting adverse loss reserve development.” Best summarized the companies affected by its rating analysis as follows: The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for New Mexico Mutual Casualty Company and its following property/casualty subsidiaries: New Mexico Assurance Company; New Mexico Employer’s Assurance Company; New Mexico Foundation Insurance Company; New Mexico Premier Insurance Company; New Mexico Southwest Casualty Company.

A.M. Best has upgraded the financial strength rating to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating to “a-” from “bbb+” of Mennonite Mutual Insurance Company, headquartered in Orrville, Ohio, and has revised its outlook for both ratings to stable from positive. Best explained that the “ratings upgrades are driven by Mennonite Mutual’s favorable underwriting results, solid operating earnings and consistent surplus growth over the previous five-year period.” Best also indicated that the “ratings reflect Mennonite Mutual’s strong risk-adjusted capitalization, profitable operating results and long-standing local market presence. The company’s capital position is driven by its modest underwriting leverage, management’s conservative operating strategies and prudent catastrophe risk management. Mennonite Mutual’s five-year operating income has been derived from profitable underwriting results in most years, combined with a steady stream of net investment income. Despite increased weather-related claims, severe fire losses and challenging market conditions, the company’s operating results have remained positive. The ratings further consider management’s initiatives to sustain its profitability trend through underwriting and pricing discipline, a reduction in property exposures and commitment to agriculture and faith-based markets. Mennonite Mutual’s operating performance further benefits from its strong agency relationships.” As partial offsetting factors Best noted “the company’s geographic risk concentration in Ohio and elevated underwriting expense ratio. As a predominantly single-state writer with a property book of business, Mennonite Mutual’s underwriting results are subject to localized weather-related losses and changes in the legal and legislative climate. The company also maintains an underwriting expense ratio disadvantage relative to industry norms, mainly due to its elevated commission structure. However, Mennonite Mutual’s underlying book of business continues to perform well, as reflected by its five-year pure loss ratio, which outperforms the personal property industry composite. In addition, there is some execution risk associated with the company’s affiliation agreement and 100 percent quota share of Mennonite Mutual Aid Society (MMAS) business, which was effective Jan. 1, 2013. However, Mennonite Mutual has re-underwritten this book of business and MMAS has been fully integrated into its operations.” In conclusion best said: “Mennonite Mutual is well positioned at its current rating level. Positive ratings actions could occur if the company maintains strong risk-adjusted capitalization and generates consistently above-average operating results. Key factors that could trigger negative rating actions include prolonged deterioration of underwriting and operating results, particularly if the resulting performance is below the peer group average with a significant erosion of risk-adjusted capitalization.”

Subscribe Like this article?
Subscribe to our free email newsletter.

Add a Comment

Your email address will not be published. Required fields are marked *

*

More News
More News Features