Best Downgrades Credit Ratings of Alabama-Based Alfa Insurance Group Members

April 18, 2019

AM Best has downgraded the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a” from “a+” and affirmed the Financial Strength Rating (FSR) of A (Excellent) of the members of Alfa Insurance Group. In addition, AM Best has downgraded the Long-Term ICR to “a” from “a+” and affirmed the FSR of A (Excellent) of Alfa Life Insurance Corporation (Alfa Life). The outlook of these Credit Ratings (ratings) remains stable. All companies are headquartered in Montgomery, Ala.

Best said in a statement the ratings of Alfa reflect the group’s balance sheet strength, which AM Best categorizes as strongest, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The downgrade of the Long-Term ICRs reflects a revision in AM Best’s assessment of the group’s operating performance to marginal from adequate. The rating action is in response to adverse trends in the group’s underwriting performance over the past five years. Overall operating results have been volatile for the past five years, Best said, as reflected in the group’s five-year average pre-tax and total returns on revenue and equity that compare unfavorably with the private passenger standard auto and homeowners composite average.

In addition, the group’s five-year combined and operating ratios lag the composite. Best said the group’s adverse performance has been driven by increased weather and catastrophe losses, which have impacted profitability ratios adversely. In the most recent years, underwriting losses emanated from hail and wind events that ran through parts of Alabama, coupled with severe losses caused by Hurricanes Michael and Irma.

Further, auto results have underperformed due to increased severity and frequency losses. Management has taken steps to improve performance, including lowering its exposures in catastrophe-prone territories, stricter underwriting guidelines, improved segmentation and taking considerable rate in core states.

The strongest level of balance sheet strength reflects the company’s strong liquidity levels, conservative investment profile and comprehensive reinsurance protection. The neutral business profile reflects the company’s geographic diversification through the southeast United States, which is offset partially due to the inherent exposure to frequent and severe weather-related events in those states.

AM Best said it views Alfa’s ERM as appropriate given the group’s manageable risk profile and effective reinsurance purchase.

The ratings of Alfa Life reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM.

The Long-Term ICRs have been downgraded to “a” from “a+” and the FSR of A (Excellent) affirmed of the following members of Alfa Insurance Group, with a stable outlook:

  • Alfa Mutual Insurance Company
  • Alfa Mutual Fire Insurance Company
  • Alfa Mutual General Insurance Company
  • Alfa Alliance Insurance Corporation
  • Alfa General Insurance Corporation
  • Alfa Insurance Corporation
  • Trexis Insurance Corporation
  • Trexis One Insurance Corporation

Source: AM Best

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