Best Affirms American Modern Home Insurance and Subs Ratings

January 23, 2012

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Ohio-based American Modern Home Insurance Company (AMHIC) and its subsidiaries. The outlook for the ratings is stable.

Germany’s Munich Reinsurance Company, the ultimate parent of AMHIC, “has extended its ratings to AMHIC and its subsidiaries, due to implicit and explicit support provided by Munich Reinsurance America, Inc., which also carries the ratings of its ultimate parent, Munich Re,” Best explained. AMHIC and its subsidiaries are owned by Munich-American Holding Corporation, the U.S.-based subsidiary of Munich Re.

The ratings of AMHIC and its subsidiaries “reflect their strong risk-adjusted capitalization, favorable operating performance and continued strategy as providers of diversified specialty personal lines insurance products,” Best said. “These positive rating factors are derived from AMHIC management’s disciplined and focused operating strategies. The companies have achieved significant surplus growth over the previous five-year period through solid investment income, and in most years, favorable underwriting performance.”

Best also noted that as AMHIC and its subsidiaries “continue to offer specialty personal lines products with a niche market focus, they provide a significant competitive advantage, particularly in terms of pricing, claims adjusting and overall marketing strategies. This has contributed to the companies’ ability to sustain direct premium growth in a competitive environment. The ratings also acknowledge the financial flexibility afforded AMHIC and its subsidiaries as part of the Munich-American Holding Corporation organization and the surplus relief provided by a 90 percent quota share reinsurance contract on its manufactured home business with Munich Re America.”

As partial offsetting factors Best cited AMHIC and its subsidiaries’ “above average underwriting leverage and elevated underwriting expense ratio relative to industry composite norms and their susceptibility to catastrophe events, as approximately 52 percent of their business is residential property.”

The report explained that the “elevated underwriting expense ratio is primarily attributable to a competitive commission expense structure, particularly in terms of its profitability based incentives. As the companies have a concentration of business in the residential property market, they are exposed to the impact of weather-related catastrophes. This was evident in 2011, when underwriting results deteriorated due to an increased frequency and severity of Midwestern wind and hail storm losses in the companies’ residential and personal property segments. However, AMHIC and its subsidiaries continue to maintain their reinsurance programs and more selectively spread their geographic risks in catastrophe-prone areas to mitigate potential effects of future catastrophic events.”

In conclusion Best said that “while the ratings for AMHIC and its subsidiaries are stable, positive rating actions could occur if there is sustained long-term improvement in their operating performance and continuation of strong overall capitalization.

“Negative rating actions could occur as a result of continued deterioration in the negative operating performance trends that occurred in 2011, driven by severe weather-related losses.”

Best summarized the companies affected by its rating action as follows:
The FSR of ‘A+’ (Superior) and ICRs of “aa-” have been affirmed for American Modern Home Insurance Company and its following subsidiaries:
American Family Home Insurance Company
American Western Home Insurance Company
American Modern Surplus Lines Insurance Company
American Modern Select Insurance Company
American Southern Home Insurance Company
American Modern Insurance Company of Florida, Inc.
First Marine Insurance Company
American Modern Lloyds Insurance Company

The FSR of ‘A+’ (Superior) and the ICR of “aa-” have been withdrawn for American Modern Insurance Group.

Source: A.M. Best

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