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FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 14, 2018 09:39 AM (EDT)
A.M. Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb” of Forestry Mutual Insurance Company (Raleigh, NC). The outlook of the FSR remains stable.
These Credit Ratings (ratings) reflect Forestry Mutual Insurance Company’s balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The Long-Term ICR outlook revision to positive is based on A.M. Best’s expectation that FMIC’s operating performance may continue to drive organic surplus growth and further improve risk-adjusted capitalization, along with stabilizing reserve development trends.
The rating affirmations further reflect FMIC’s strengthening risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), but A.M. Best recognizes the potential for variability given FMIC’s monoline product orientation in the workers’ compensation market, which is characterized by potentially high severity claims and could be subject to changes in loss costs, utilization and medical inflation. The company’s retention is manageable relative to its surplus. Surplus has grown organically by 79% over the past five years, ending 2017 at $24.1 million, the highest level in the company’s history after five consecutive years of operating profits.
In addition, A.M. Best considers the company’s operating performance to be adequate, benefiting from geographic diversification by entering markets in neighboring states, as well as the initiatives taken to restructure its reinsurance program to reduce net loss ratio volatility. The company’s calendar year results reflect more favorable reserve development annually, on average, than those of the industry, even with lower accident year original loss picks. These favorable development results generally reflect ongoing analysis of recent loss development trends. Original estimates are increased or decreased as additional information becomes known regarding individual claims, and the company seeks to reserve to the expected ultimate loss level within two years.
The business profile is limited as a mono-line workers compensation writer for the logging and forestry industries, which exposes it to risks associated with the timber industry such as a slowdown in construction industry or changes in the demand for wood products. However, FMIC has a defensible niche as a recognized leader in this industry. Forestry Mutual generates approximately 60% of its business in North Carolina and Virginia but its geographic diversification has improved in recent years with the company’s expansion into Georgia in 2014. ERM is appropriate for the size and scope of the company’s operations. Its focus on safety and loss prevention has been recognized by the Occupational Safety and Health Administration and the tight control structure ensures management is aware of key risks and developing trends.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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