A.M. Best Downgrades Ratings of Philadelphia Contributionship Group

February 18, 2015

A.M. Best said Wednesday it has downgraded the financial strength rating to A (Excellent) from A+ (Superior) and the issuer credit ratings to “a+” from “aa-” of The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire Inc. (Philadelphia Contributionship) and its wholly owned subsidiaries, Philadelphia Contributionship Insurance Company and Germantown Insurance Company, collectively referred to as Philadelphia Contributionship Group (Group).

All companies are domiciled in Philadelphia. The outlook for all ratings has been revised to stable from negative.

A.M. Best said the rating downgrades reflect the Group’s concentration of property business, which has led to several years of underwriting volatility, driven by record catastrophic weather events and other severe storms such as in 2011 (Irene), 2012 (Sandy) and multiple storm losses in 2014.

The frequency and severity of gross catastrophe losses were elevated over the past five years. However, policyholders’ surplus over the past five years increased in spite of the sizable underwriting losses, because they were offset by net investment income, other income and capital gains in the investment portfolio, according to A.M. Best.

The ratings of the Group reflect sustained, strong capitalization and long-standing market presence in Philadelphia and the surrounding areas. This is partially offset by the Group’s concentration of property business, which exposes the Group to severe weather-related events, according to A.M. Best.

In addition, high investment leverage exists, which exposes the company to equity market volatility. These offsetting rating factors are somewhat mitigated by significant risk management strategies that are embedded throughout the organization and designed to address the key risk factors identified by management, A.M. Best said.

Factors that may lead to negative rating actions include sudden, unexpected and material decline in risk-adjusted capitalization, sustained deterioration in operating performance, or diminished liquidity measures. Factors that may lead to positive rating actions include sustained improvement in operating performance while maintaining strong levels of risk-adjusted capitalization and other performance measures.

Source: A.M. Best Company

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