S&P Affirms ‘BBBpi’ Ratings of New York Central Mutual Fire Insurance Co.

November 26, 2003

Standard & Poor’s Ratings Services announced that it has affirmed New York Central Mutual Fire Insurance Co.’s (NYCM) ‘BBBpi’ counterparty credit and financial strength ratings. The “pi” indicates the ratings are compiled from public information.

“The ratings reflect its extremely strong capitalization, large surplus base, marginal operating performance, and extremely high geographic concentration,’ said the bulletin

S&P cited the following “Major Rating Factors:
— Capitalization as measured by Standard & Poor’s capital adequacy model is extremely strong at 182 percent. The company has a large surplus base, which stood at $193 million at year-end 2002.

— Operating performance is marginal, as measured by a Standard & Poor earnings adequacy ratio of 21.8 percent. The company has made profits in three out of the last five years, but the earnings have been very volatile, ranging from a profit of $20.2 million in 1998 to a loss of $11.1 million in 2002. In addition, the company has a moderate five-year average return on revenue of 3.9 percent. However, net premium earned increased 39 percent to $334 million in 2002.

— Geographic concentration is extremely high with 100% of the company’s business in New York. In addition, the product line is somewhat concentrated, with the auto insurance segment comprising about 73% of revenue.

The bulletin noted that the Edmeston, N.Y.-based company has been in business since 1899, and is licensed to operate in New York and North Carolina. It provides primarily personal lines, auto, and homeowners policies through an independent agency system. “During 2001, NYCM expanded its presence in New York by establishing a downstream holding co., NYCM Holding Inc., which in turn established a subsidiary, A. Central Insurance Co. (ACIC). Effective Jan. 1, 2001, NYCM and ACIC entered into a pooling agreement under which they receive 98 percent and 2 percent, respectively.”

The company is rated on a “stand-alone” basis.

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