Ratings Recap: Farmers of Tenn., Wisc. Am. Mutual, Commerce Protetctive

October 28, 2011

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Farmers Mutual of Tennessee. Best explained that the revised outlook of Farmers of Tennessee “reflects its poor underwriting performance in recent years and limited business profile, which are not reflective of its current rating level. Farmers of Tennessee maintains a single state geographic concentration, which exposes earnings and surplus to localized weather events. This was evident in recent years, as severe storms generated significant claims and gross losses.” However, Best also noted that the company’s” sound reinsurance program mitigated much of these losses. In addition, Farmers of Tennessee has experienced an increase in fire claims, which further dampened its underwriting performance. However, Farmers of Tennessee has strong risk-adjusted capitalization that is derived from its conservative underwriting leverage. Furthermore, Farmers of Tennessee retains excellent liquidity measures and has a long standing local market presence.”

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Wisconsin American Mutual Insurance Company (WAMIC), following its October 1, 2011 merger with, and into, Minnesota-based Western National Mutual Insurance Company, the lead member of the Western National Insurance Group. Western National Mutual Insurance Company’s FSR of ‘A’ (Excellent) and ICR of “a” are unchanged following this merger. WAMIC became affiliated with Western National Mutual Insurance Company in November 2010. The merger of WAMIC is part of Western National Group’s ongoing strategy to streamline its insurance company structure into fewer operating companies in order to maximize efficiency.

A.M. Best Co. has downgraded the financial strength rating to ‘B’ (Fair) from ‘B+’ (Good) and the issuer credit rating to “bb” from “bbb-” of Pennsylvania-based Commerce Protective Insurance Company (CPIC), and has removed both ratings from under review with negative implications and assigned a negative outlook. The rating downgrades “follow a review of CPIC’s recent operating results wherein significant underwriting and operating losses were reported,” said Best. These losses are “primarily attributable to increased claim frequency in the company’s physical damage trucking business as well as net investment income that has declined as a result of conservative, short-term investments. This deterioration follows CPIC’s below-average operating performance in recent years,” which Best said it “believes will continue in the near term as a result of the adverse effects of its above-average growth in competitive markets. The company’s above-average expense ratio has unfavorably affected its underwriting performance for a number of years and continues to trend higher. In the first six months of 2011, CPIC reported a net loss of $501,911 (the majority in the second quarter), which resulted in a 21.8 percent decline in the company’s statutory capital and surplus.” However, best also indicated that its concerns with this surplus decline “are partially mitigated by a $750,000 infusion of cash into CPIC by its parent, Londonderry Group, Ltd., in September 2011, which the parent raised from current investors. In addition, CPIC has begun to take corrective actions to improve its underwriting experience, including raising premium rates, tightening underwriting standards, lowering commissions, changing its towing coverage and scaling back in some regions where warranted. However, such corrective actions will be challenging to successfully implement in competitive markets. The outlook for CPIC’s ratings is reflective of the aforementioned concerns and its currently unfavorable underwriting and overall operating performance trends.”

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