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FOR IMMEDIATE RELEASE
OLDWICK - JANUARY 30, 2015 10:58 AM (EST)
A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of B++ (Good) and the issuer credit rating (ICR) of "bbb" of Kentucky Growers Insurance Company (Kentucky Growers) (Lexington, KY).
The revised outlook to stable from negative reflects Kentucky Growers' improved underwriting results, operating earnings and surplus growth in 2013 and 2014, driven by management's strategic initiatives and reduced storm activity.
Kentucky Growers maintains strong risk-adjusted capitalization, improved operating performance in recent years and a well-established market presence. The company's strong risk-adjusted capitalization is driven by modest underwriting leverage, a conservative investment risk profile and moderate net catastrophe exposure after reinsurance. An aggregate excess of loss treaty helps to mitigate the impact of increased storm frequency on surplus. In addition, the company reported solid underwriting results, operating earnings and strong surplus growth in 2013 and 2014, driven by management's strategic initiatives and reduced storm activity. Furthermore, management has reduced the retention level on its 2015 catastrophe reinsurance program and aggregate excess of loss treaty, which should help to further mitigate storm losses.
Kentucky Growers' negative rating factors include five-year underwriting and operating losses and a modest decline in surplus due to significant storm losses in its operating territory. Consequently, the company's five-year combined ratio and pre-tax operating returns were significantly worse than industry composite norms. The company reported a number of years of underwriting losses due to frequent and severe weather events that resulted in elevated combined ratios, particularly in 2011 and 2012. However, the company is mitigating the volatility experienced over the last 10 years through rate increases, deductible increases, insurance to value initiatives, underwriting initiatives and increased reinsurance protection. As a single state property writer with a geographic concentration of risk in the state of Kentucky, underwriting results remain exposed to severe weather patterns.
Negative ratings actions could occur if there is a material deterioration in the company's operating performance and/or risk-adjusted capitalization, potentially driven by increased storm losses. Any positive rating movement is contingent upon the company's ability to report consistent and sustained operating profitability while maintaining sound overall risk-adjusted capitalization and moderate leverage measures.
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:
This press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center.
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