Best Affirms FSR for Harleysville

April 19, 2005

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and assigned an issuer credit rating (ICR) of “a-” to Harleysville Insurance (Harleysville) (Harleysville, Pa.) and its property/casualty pooling members.

Concurrently, A.M. Best has affirmed the financial strength rating of B++ (Very Good) and assigned an ICR of “bbb+” to Harleysville Life Insurance Company (Harleysville Life) (Lansdale, Pa.).

Additionally, A.M. Best has affirmed the debt rating of “bbb-” of Harleysville Group Inc.’s existing senior note and the indicative ratings of “bbb-” senior debt, “bb+” subordinated debt, “bb” trust preferred securities and “bb” preferred stock that are filed as part of its universal shelf registration. All ratings have a stable outlook.

The ratings of Harleysville reflect the group’s solid capitalization and regional market franchise and the benefits to be derived from management’s corrective actions, as well as Harleysville’s strong name recognition, well-established agency relationships and stable market presence. Harleysville’s re-underwriting and pricing initiatives, actions to lower costs and enhance operating efficiencies, and the recent improvements to its claims operations should result in improved results in future periods.

However, A.M. Best remains concerned with the continued adverse loss reserve development reported since 2003, the next soft market cycle and, more importantly, Harleysville’s ability to manage through these market cycles in the future.

Harleysville is also afforded financial flexibility through its publicly traded holding company, HGIC, which has access to the capital markets. HGIC maintains moderate financial leverage with a total debt-to-total capital ratio of 18.3 percent at year-end 2004, which is enhanced by excellent cash coverage of its holding company obligations.

The ratings of Harleysville Life are based on the company’s integral relationship with its higher-rated property/casualty affiliates. The ratings also recognize a positive ordinary life premium growth trend, the recent turnaround in operating profitability in its group accident and health line of business and a high credit-quality investment portfolio.

Partially offsetting these factors are Harleysville Life’s modest size relative to the overall group, inconsistent statutory operating results and geographic concentration risk.

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