Amica Mutual Insurance Co. no longer has a perfect financial strength rating from A.M. Best. More catastrophe losses and worsening automobile insurance claims severity are both to blame.
Specifically, an A+ (Superior) financial strength rating (FSR), down from A++(Superior), now applies to Amica Mutual Insurance Co. and its wholly owned subsidiary, Amica, Property & Casualty Insurance Co. (known jointly as Amica Mutual Group).
Separately, A.M. Best’s long-term issuer credit ratings for both entities have been downgraded to “aa” from “aa+.”
A++ is the highest financial strength rating A.M. Best gives.
A.M. Best revised the outlook of the long-term issuer credit ratings to negative from stable, though the outlook of the financial strength ratings remains stable. As well, A.M. Best affirmed the financial strength rating of A+ and the long-term issuer credit rating of “aa-” for Amica Life Insurance Company, an Amica Mutual wholly-owned subsidiary. The outlook for both is stable.
A.M. Best noted that Rhode Island-based Amica keeps a strong risk-adjusted capitalization, but said the ratings downgrades come from “deteriorating underwriting results in recent years, mainly driven by increased catastrophe losses in conjunction with elevated losses on the automobile insurance line of business, due primarily to increases in claims severity.” Amica is a direct writer of personal lines property/casualty products.
A.M. Best said Amica has seen net underwriting losses reflected in an increasing loss ratio in recent years, “which compares unfavorably with similarly A.M. Best-rated peer companies and companies in the private passenger standard auto and homeowners” composite the ratings agency tracks.
“Management has responded with rate increases, and coupled with a return to a more normalized level of loss activity, expects underwriting results to improve in the near future,” A.M. Best said. “Additionally, surplus growth has been tempered over the latest five-year period, primarily due to the payment of significant levels of policyholder dividends.”
Another point of A.M. Best’s concern: Amica’s results have depended “heavily” on both net income and realized capital gains, which have been a positive factor for recent years’ cash flows.
But in 2015, Amica said it had negative operating cash flow due to its higher-than-normal catastrophe experience, though it generated positive cash flows from operations in 2016, A.M. Best said.
“The ratings also reflect Amica’s strong, yet declining, level of risk-adjusted capitalization, reflective of a high quality investment portfolio and relatively low underwriting leverage, solid liquidity, generally favorable operating returns and national market presence and brand recognition, with a reputation for excellent customer service,” A.M. Best said.
Amica responded to the downgrade in a statement on Tuesday, Feb. 7, from Robert A. DiMuccio, Amica’s chairman, president and chief executive officer, in which he cited weather and higher auto claims severity for the change and said steps are being taken to address the issues. The complete Amica response follows:
“We are pleased to remain in A.M. Best’s Superior category with our A+ rating. We are also pleased that A.M. Best reaffirmed Amica Life’s Superior (A+) rating.
The change in Amica Mutual’s rating was the result of a higher level of claims experienced in 2015 and 2016, primarily due to an increased level of weather-related claims in the Northeast and Southwest regions of the country. It’s also due to a higher severity of auto accidents that have steadily risen in the past two years. This is an industrywide issue, as there are more cars on the road, a pattern of distracted driving, and higher repair costs for newer vehicles.
Amica Mutual’s policy and premium growth remain strong, and our underwriting profit continues to improve as we’ve taken actions to address the higher levels of claims experienced over the last two years. As a mutual insurer, our focus is on maintaining a strong financial position and living up to the customer service standards that have defined our company for more than a century.”
Source: A.M. Best
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