Best’s News & Research Service - March 25, 2013 04:30 PM (EDT)
A.M. Best Revises Outlook to Negative for National Fire and Indemnity Exchange
OLDWICK, N.J. //BestWire// - A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit ratings (ICR) of “a-“ of National Fire and Indemnity Exchange (NIE) (St. Louis, MO).
The ratings reflect NIE’s supportive capitalization and favorable underwriting leverage measures as well as its leadership position in the specialty niche fabricare industry. While the exchange operates with an expense ratio that is more than double that of the commercial property industry composite, its net loss and loss adjustment expense ratio remains superior to that of the composite, revealing the quality of its book of business.
The negative outlook reflects A.M. Best’s concerns with regard to NIE’s results in recent years, specifically the adverse development on the loss reserves of the two most recent accident years. The exchange’s operating performance has been weaker than that of similarly rated companies.
Partially offsetting the positive rating factors are NIE’s recent underwriting results, which have been unfavorably impacted by adverse development on old environmental claims as case law in Indiana has gone against the ISO pollution exclusions utilized by NIE. Net investment income is also trending downward, presenting additional hardship because the exchange has been somewhat dependent on investment income to make up for underwriting losses. The unprofitable underwriting results are particularly problematic considering the company’s plans to grow top line premium fairly aggressively over the next couple of years.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.