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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - APRIL 29, 2011 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) and issuer credit ratings to "a+" from "aa-" of Central Insurance Companies (Central) and its members, Central Mutual Insurance Company, All America Insurance Company (both domiciled in Van Wert, OH) and CMI Lloyds (Irving, TX). The outlook for all ratings has been revised to stable from negative.
The rating actions are a result of the deterioration in Central's operating performance in recent years, driven by underwriting losses primarily attributable to consecutive years of weather claims that were well above historical averages. The impacts of Hurricane Ike (2008) in Texas and Ohio, and two significant hailstorms in Oklahoma that generated nearly $30 million in net losses, are reflected in Central's weather losses. As a result, underwriting and pre-tax operating and losses have been reported for three consecutive years. In addition, net income has been unfavorable during the same time.
Partially offsetting these negative rating factors is Central's risk-adjusted capitalization, which remains strong despite the recent reduction in surplus, and its geographic spread of risk. Also, Central maintains competitive advantages within its core personal and commercial segments, which have promoted excellent business persistency. These advantages include high quality customer service, strong agency relationships and enhanced internet technology. Although Central has coastal exposure, management maintains a comprehensive reinsurance program in order to mitigate the impact of catastrophic events on surplus.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Catastrophe Risk Management Incorporated Within the Rating Analysis"; "Catastrophe Analysis in A.M. Best Ratings"; "Rating Members of Insurance Groups"; and "Natural Catastrophe Stress Test Methodology." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.