A.M. Best Assigns Initial ‘B’ Rating to American Inter-Fidelity Exchange

March 31, 2003

A.M. Best Co. has assigned an initial financial strength rating of “B” (Fair) to Merrillville, Ind.-based American Inter-Fidelity Exchange (AIFE). The rating outlook is stable.

The rating reflects AIFE’s relatively high retentions and exposure to the high loss severity of the commercial trucking liability business. In 1994, AIFE was placed under the rehabilitation of the Indiana Department of Insurance following imprudent growth, poor claims management and resulting operating losses.

While in rehabilitation, AIFE limited its premium production to its original subscribers. It emerged from rehabilitation in November 2001 following consecutive years of profits and surplus growth. However, net premiums written increased considerably in 2002, its first full year out of rehabilitation. Furthermore, due to the variability in AIFE’s loss development history, A.M. Best is concerned with the adequacy of loss reserves, as any additional adverse reserve development would dampen AIFE’s profitability.

Partially offsetting these negative rating factors are AIFE’s conservative leverage position, specialized underwriting experience and operating profitability in recent years. While in rehabilitation, efforts were made to restore earnings growth, such as the cancellation of the poorly performing subscribers. Additionally, with minimal exposure to the volatile equity market, AIFE’s return on invested assets has been stable.

Since capitalization supports the assigned rating, A.M. Best views the rating outlook as stable. A.M. Best will continue to monitor AIFE’s earnings, in conjunction with maintaining prudent loss reserve levels, planned business production and surplus generation.

Topics AM Best

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