Grange Insurance Assn. Assigned ‘BBBpi’

Standard & Poor’s assigned its “BBBpi” financial strength rating on Seattle-based Grange Insurance Assn.

The rating action reflects the company’s and group’s extremely strong capitalization and historically favorable reserve development, offset by marginal but improving operating performance.

The non-assessable mutual writes mainly private passenger auto and homeowners’ multi-peril for members of the fraternal Grange, which is the nation’s oldest and second largest farm organization. Nearly 95 percent of the company’s business lies within its major states of operations – Washington, California, Colorado, and Oregon. Its products are distributed primarily through independent general agents.

Major Rating Factors:

The rating is based on the consolidated financial results of Grange Insurance Assn. (NAIC: 22101) and Rocky Mountain Fire & Casualty Co.

At year-end 1999, capital adequacy as measured by Standard & Poor’s model was extremely strong. The consolidated surplus, which stood at $83.7 million at year-end 1999, has grown at a compound annual rate of 9.0 percent since 1992. The gain in surplus of $14.5 million from that in 1998 was composed of $10.5 million in net income, $3.1 million in net unrealized capital gains, a positive $1.5 million change in the company’s excess statutory reserves, and a negative $0.6 million change in all other items.

The group has strong reserves with a consistent favorable two-year loss reserve development. The average reserve release has been 17.2 percent with respect to surplus since 1995. The reported ratios have ranged from 27.8 percent redundant (negative development) to 5.3 percent redundant in the last five years.

Consolidated operating performance has been marginal, with a five-year average ROR of 4.6 percent. However, recent operating performance has improved with the time-weighted ROR from 1996-1999 at 6.9 percent as a result of the absence of recent catastrophe and storm-related losses. The gain in net income of $0.3 million in 1999 compared with the net income in the prior year was composed primarily of $1.9 million in net realized capital gains offset by a decline of $1.6 million in net underwriting income. The company reports its 1-in-250-years probable maximum insured loss event at $21 million, which is covered under current reinsurance programs.

The group is somewhat geographically concentrated. At year-end 1999, about 56 percent of the group’s net premiums written were in its largest state of Washington.