Ratings Roundup: American Family, Battle Creek, Central Co-op

March 23, 2009

A.M. Best Co. has revised its outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” for American Family Insurance Group (AMFAM), which includes American Family Mutual Insurance Company and its three reinsured subsidiaries. Best has also revised the outlook to negative from stable and affirmed the FSR of ‘A’ (Excellent) and ICR of “a” of AMFAM’s life/health member, Ohio-based American Family Life Insurance Company (AFLIC). Best explained that the “negative outlook of AMFAM reflects its trend of weak operating results, the recent decline in its risk-adjusted capitalization, continued exposure to catastrophic losses and the ongoing competitive market conditions in the personal and commercial marketplace. The group’s negative operating performance over the past several years was largely due to severe wind/hail and winter storm losses as a result of AMFAM’s geographic concentration in the Midwest. Competitive personal lines market conditions prevailed during this period, which also contributed to the group’s weak underwriting profitability. Additionally, the group reported realized and unrealized capital losses resulting from unprecedented capital market volatility, which contributed to its reduction in capitalization. In an effort to reduce its exposure to Midwest catastrophic losses, AMFAM continued its geographic expansion into additional states, implemented new rating zones, changed policy language and enhanced its catastrophic reinsurance program.

A.M. Best Co. has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Battle Creek Mutual Insurance Company of Battle Creek, Nebr., but Best has also revised the outlook for both ratings to negative from stable. Best said its “ratings reflect Battle Creek’s adequate level of risk-adjusted capitalization, long-standing local market presence and conservative investment portfolio, which produced a steady stream of income and offset underwriting losses over several years. Additionally, the ratings also reflect management’s corrective actions to improve profitability, such as rate revisions, cancellation of unprofitable agencies and adhering to tighter underwriting guidelines.” Best explained that the “revised outlook reflects the deterioration in Battle Creek’s risk-adjusted capitalization following significant operating losses in 2008 as a result of significant weather and investment related losses. As a single state writer in Nebraska, Battle Creek’s operating results will continue to be exposed to frequent and severe weather-related events and competitive market conditions.” Best also said it is “concerned that Battle Creek’s capitalization may deteriorate further if its operating performance does not improve in the near term.”

A.M. Best Co. has upgraded the issuer credit rating (ICR) to “bbb+” from “bbb” and affirmed the financial strength rating of ‘B++’ (Good) of Central Co-Operative Insurance Company of Baldwinsville, NY, both with stable outlooks. “The upgrading of the ICR of Central Co-Op reflects its trend of positive operating performance, favorable risk-adjusted capitalization and long-standing local market presence in its operating territory,” Best explained. “Central Co-Op’s capital position is the outcome of several years of positive underwriting results derived from adhering to tightened underwriting guidelines during a period of competitive market conditions, coupled with a portfolio of invested assets that generated a steady stream of investment income. As a result of management’s successful implementation of its strategies, including those involving changing market conditions, significant surplus growth has been achieved.”

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