A.M. Best Co. Lowers Rating of Ohio Casualty Group

A.M. Best Co. lowered the financial strength rating of the Ohio Casualty Group, Fairfield, Ohio, from “A” (Excellent) to “A-” (Excellent). The rating applies to the five pool members led by Ohio Casualty Insurance Company and a separately rated affiliate. A silent outlook has been placed on the group’s rating.

According to A.M. Best, the rating action reflects the sharp deterioration in the group’s earnings and the significant reduction in policyholders’ surplus over recent years, led by rising loss cost trends and expenses and adverse prior accident year loss reserve development. In addition, this rating action reflects the significant challenges that management will face in its efforts to restore earnings to levels consistent with A.M. Best’s A (Excellent) rating standards.

A.M. Best further indicated that the group’s calendar year underwriting results have deteriorated significantly over the last two years due mostly to pricing inadequacy (particularly in commercial lines) and catastrophe losses. Declining surplus levels, coupled with double-digit growth in written premium from the acquisition of Great American Insurance Company’s commercial lines book, has led to a meaningful increase in operating leverage measures to levels that exceed the group’s composite norm. Capitalization is further constrained by above average investment leverage, attributable to Ohio Casualty’s sizable common stock portfolio and holdings of non-investment grade fixed income securities.

Despite this negative rating action, A.M. Best stated that the group has maintained its Excellent rating status due to its solid capitalization, as well as the strategic initiatives put in place by management.

A.M. Best noted that in an effort to turn around weak operating performance, a new management team was established in the first quarter of 2001. The new leadership at Ohio Casualty has been proactive in its implementation of directives aimed at returning the group to operating profitability. At the forefront of management’s strategy is an aggressive expense containment policy that directly affects all areas of the organization.

Further, the company is reviewing and re-underwriting all unprofitable products, increasing rates and strengthening its underwriting guidelines. Agency relationship management is also a major objective of the group, as is improving workflow efficiency. In February 2001, Ohio Casualty Corporation’s Board of Directors eliminated the quarterly dividend requirement that was imposed upon Ohio Casualty’s member companies. The management team is also reviewing several possibilities for refinancing its existing bank debt.

In addition to the above, the rating is supported by the group’s overall market knowledge, customer loyalty and diversified earnings stream. With over 80 years of experience, Ohio Casualty has built a solid reputation as a leader in the property/casualty market.

Topics Ohio AM Best Casualty