S&P Affirms Pioneer State Mutual Insurance Co.’s ‘BBBpi’ Ratings

November 28, 2003

Standard & Poor’s has affirmed its ‘BBBpi’ financial strength rating on Pioneer State Mutual Insurance Co. based on the company’s extremely strong capitalization, good operating performance, and high geographic concentration.

Based in Flint, Mich., the company writes auto, homeowners, farm owners, mobile homeowners, businessowners, and workers’ compensation policies and provides them through a network of independent agents. The company, which began operations in 1908, is licensed in Michigan and Indiana.

The company is rated on a stand-alone basis.

Major rating factors

— The company’s capitalization at year-end 2002 is extremely strong. Leverage, as measured by the ratio of premium and liabilities to surplus, is conservative at 1.59 times in 2002. However, surplus was reduced by $0.5 million in 2002 primarily due to the depreciation of investments in the equity market;

— Operating performance is good with Standard & Poor’s earnings adequacy ratio of 74.4 percent and a five-year average return on revenue of 7.4 percent. The company’s direct written premium increased by 48 percent and stands at $103 million in 2002. The company is making profits consistently but its net income reduced by 25.5 percent to $2.9 million in 2002;

— The company has high geographical concentration with the state of Michigan accounting for 100 percent of its premium income. However, the company has a well-diversified product line in the homeowner’s multi peril, private passenger auto liability and auto physical damage segments.

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