A.M. Best Revises Outlook, Affirms Financial Rating of Andover Cos.

May 12, 2011

Ratings firm A.M. Best Co. has revised the outlook to negative from stable and affirmed the issuer credit ratings of “aa” of the Andover, Mass.-based Andover Companies Pool and its members. The members are Merrimack Mutual Fire Insurance Co. and its majority-owned subsidiary, Bay State Insurance Co. and affiliate, Cambridge Mutual Fire Insurance Co.

A M. Best also has affirmed the financial strength rating of A+ (Superior) of Andover. The outlook for the FSR is stable.

A.M. Best said its revised issuer credit ratings outlook reflects its concerns regarding the what it sees as the need for Andover’s management to more fully demonstrate an appropriate level of catastrophe risk management practices commensurate with its property product focus and geographic concentration, as well as reflective of its Superior rating level. While Andover’s historical results are favorable, they have not been tested from a catastrophe exposure perspective, the ratings form said. A.M. Best said it plans further discussions with the insurer’s management in order to “assess the adequacy of the pool’s ongoing catastrophe risk management practices.”

A.M. Best said its ratings of Andover recognize the insurer’s “solid risk-adjusted capitalization, strong operating performance and long-standing market presence” that have established it as a leading homeowners’ insurance writer in Massachusetts. It said the positive rating factors are derived from Andover’s conservative underwriting and investment leverage position and the generally favorable loss reserve development trends in its core book of business.

Partly offsetting these positive rating factors, according to A.M. Best, is Andover’s property predominant focus and geographic concentration in the Northeast that makes it susceptible to severe weather-related events and catastrophes, regulatory decisions and competitive market conditions.

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