A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Chicago-based First Nonprofit Insurance Company (FNIP). In addition Best has affirmed the FSR of ‘B++’ (Good) and ICR of “bbb+” of FNIP’s wholly owned subsidiary, Milwaukee Insurance Company (MIC). The outlook for all of the ratings is stable. The revised outlook for FNIP’s ratings “reflects its historically subpar operating performance and Best’s concerns that future returns may not be of sufficient strength to support the company’s current rating level,” the report explained. Best said FNIP’s “volatile return measures are primarily due to weak investment earnings, although underwriting results have been somewhat mixed over the past five years with weather driving losses since 2010. As more positive factors, Best cited “FNIP’s strong capitalization, favorable loss ratios and significant market presence in the nonprofit community. The company’s niche underwriting focus has helped it achieve favorable loss ratios, which are typically a few points below its peer composite. Despite FNIP’s very strong level of risk-adjusted capital, its ratings could be negatively impacted by continued weak operating results relative to its industry peers. The ratings for MIC reflect its run-off status and negligible level of loss reserves. As a result, underwriting leverage is de minimus and risk-adjusted capitalization is very strong. Modest earnings are driven by the company’s investment portfolio.”
A.M. Best Co. has downgraded the issuer credit ratings (ICR) to “a” from “a+” and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) of Central Insurance Companies and its member companies, Central Mutual Insurance Company, All America Insurance Company (both of Van Wert, Ohio) and Texas-based CMI Lloyds. The outlook for all of the all ratings is stable. The affirmation of the FSR reflects Central’s “strong risk-adjusted capitalization, which remains supportive of the rating despite several consecutive years of unfavorable operating performance and an overall decline in surplus subsequent to 2007,” Best explained. The report also pointed out that “Central’s business strategy, which keeps its net written premium underwriting leverage ratio at a moderate level, has contributed to its favorable capitalization. The FSR also recognizes Central’s competitive advantages within its core personal and commercial segments, its high quality customer service, strong agency relationships and geographic spread of risk.” Best said the downgrading of the ICRs “stems from Central’s negative pre-tax returns on revenue in recent years and a negative five-year average total return on surplus for the period ending 2011. In recent years, Central has experienced weather-related losses well in excess of its historical average. Solid net investment income partially offset significant underwriting losses during this period. Central is addressing its unprofitable results through targeted rate changes, particularly increases for personal lines coverages. There could be downward pressure on Central’s ratings going forward if the unfavorable operating performance of recent years continues or if risk-adjusted capitalization weakens.”
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