Best’s News & Research Service - November 19, 2014 03:45 PM (EST)
A.M. Best Downgrades Ratings of Affinity Mutual Insurance Company
- November 19, 2014 03:45 PM (EST)
Oldwick //BestWire// - A.M. Best has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and the issuer credit rating (ICR) to "bbb+" from "a-" of Affinity Mutual Insurance Company (AMIC) (Lima, OH). The outlook for the FSR has been revised to stable from negative, while the outlook for the ICR remains negative.
The rating downgrades are based on the deterioration in AMIC's underwriting results and operating earnings in several of the past five years, most significantly in 2011, 2012 and through the first three quarters of 2014. The results were impacted by weather-related events and fire losses, coupled with a historically elevated underwriting expense structure. As of Sept. 30, 2014, AMIC's surplus had declined 11.6% from its year-end 2013 level. AMIC's risk-adjusted capitalization, while remaining supportive of the ratings, has also deteriorated substantially. The negative outlook for AMIC's ICR rating reflects the uncertainty regarding the timing and ability of the corrective actions being taken by management to stabilize results in the near term.
The ratings and the revised outlook for the FSR reflect AMIC's solid, but declining, level of risk-adjusted capitalization, low underwriting leverage and strong balance sheet liquidity. These positive rating attributes are offset by AMIC's exposure to weather-related events due to its geographic concentration of risk and high common stock leverage, which results in a heightened exposure to equity market volatility.
Negative rating actions could occur if there is a continuation of operating losses leading to a decline in risk-adjusted capitalization. In addition, given continued high common stock leverage, negative rating actions may be taken should equity prices exhibit extreme volatility, causing a significant reduction in risk-adjusted capitalization.
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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
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