Ratings: 1st Choice Auto, Commerce, Dorinco, Battle Creek, Met Life Auto & Home, Toyota

June 12, 2009

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B++’ (Good) and upgraded the issuer credit rating (ICR) to “bbb+” from “bbb” of 1st Choice Auto Insurance Company, Inc., and has revised its outlook on the ratings to positive from stable. Best also upgraded the FSR to ‘B++’ (Good) from ‘B+’ (Good) and ICR to “bbb” from “bbb-” of Ever-Greene Mutual Insurance Company with a stable outlook. In addition, Best has affirmed the FSR of ‘B++’ (Good) and ICR of “bbb+ of ECM Insurance Group Everett Cash Mutual Insurance Company, which is 1st Choice Auto’s parent company and an affiliate of Ever-Greene. The outlook for these ratings is positive. All companies are domiciled in Everett, PA. “The ratings of 1st Choice Auto recognize its continued underwriting profitability, favorable risk-adjusted capitalization and strategic affiliation with the Group,” said Best. However, “the company’s limited geographic concentration of risk and limited product offering,” should be considered as partially offsetting factors. Best said the positive outlook reflects its expectation that “underwriting performance and risk-adjusted capitalization will continue to trend favorably in the near term. The ratings of Ever-Greene are indicative of its modest underwriting leverage, profitable operating performance, favorable risk-adjusted capitalization and affiliation with the Group, and are somewhat offset by the company’s limited business profile.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” for Commerce Group, its lead company, The Commerce Insurance Company and Commerce’s four inter-company pool members. Best also revised the outlook to negative from stable and affirmed the ICR of “a-” and the debt rating of “a-” of $300 million 5.95 percent senior unsecured notes due 2013 of Commerce’s parent holding company, The Commerce Group, Inc. (CGI). All companies are domiciled in Webster, MA, unless otherwise specified. Best explained that the “revised outlook reflects the weakening in the consolidated capitalization of Commerce’s parent organization, MAPFRE S.A. (Spain). The ratings reflect Commerce’s reduced, yet solid capitalization, strong operating performance and local market expertise. In addition, Commerce’s wholly owned subsidiaries, Commerce West Insurance Company (Pleasanton, CA), American Commerce Insurance Company (Columbus, OH) and State-Wide Insurance Company (Hempstead, NY) provide geographic diversification and rate flexibility to the group.” As partially offsetting factors, Best cited “the group’s concentration of business in Massachusetts and its limited product scope, which is focused on private passenger automobile insurance.” In addition Best noted that Commerce’s operating performance is strong; however, it “remains influenced by the Massachusetts personal automobile market and susceptible to weather-related losses. As the state’s leading writer of personal lines business, Commerce benefits from its brand name recognition, adherence to strict underwriting fundamentals and in-depth understanding of the personal lines marketplace.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Dorinco Reinsurance Company of Midland, Mich., the captive reinsurance company for The Dow Chemical Company. The outlook for both ratings is stable. Best said “these rating actions recognize Dorinco’s strong risk-adjusted capitalization, strategic relationship with Dow and Dorinco’s balanced risk profile. The risk profile of Dorinco remains diversified through the short-tail nature of its unrelated third party business and the longer-tail exposure associated with the Dow business.” In addition Best explained that “several years ago, Dorinco put a strategy in place to reposition its risk profile with the goal of improving profitability, reducing volatility and creating sustainable results while achieving its primary objective of being a risk management tool for Dow. The strategy employed has demonstrated steady and measurable progress thus far, and management is committed to maintaining this strategy going forward.” However Best also noted that the “challenges faced by its ultimate parent,” should be taken into account.” Dow recently completed a sizeable acquisition and has been progressing towards restructuring its credit profile during a challenging economic environment,” Best explained. “If Dow’s credit profile weakens, it could put pressure on the ratings of Dorinco.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘C++’ (Marginal) from’ B+’ (Good) and issuer credit rating (ICR) to “b” from “bbb-” of Nebraska-based Battle Creek Mutual Insurance Company, and has assigned both ratings a negative outlook. “These rating actions reflect Battle Creek’s unfavorable operating performance and deteriorating level of surplus, which negatively impacted the company’s risk-adjusted capitalization,” Best explained. “The poor operating results were driven by severe weather-related events in 2008 coupled with investment-related losses. Further, in early 2009, a single common stock holding, representing a significant percentage of invested assets, was written off by Battle Creek resulting in an additional decline in policyholder surplus.” Best also explained that the rating outlook reflects its concern that “Battle Creek’s capitalization may deteriorate further if the company’s operating performance does not improve in the near term. 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. Offsetting the negative rating factors is Battle Creek’s longstanding local market presence and management’s strategies designed to improve operating performance. However, uncertainty remains regarding the ultimate success of those initiatives.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of MetLife Auto & Home and its nine members, led by Metropolitan Property and Casualty Insurance Company. The outlook for all of the ratings is stable. Best said the “ratings reflect MetLife Auto & Home’s adequate capitalization, consistent operating performance, strong enterprise risk management practices and successful multiple-channel distribution network.” However, offsetting factors include “the group’s moderately elevated underwriting leverage, as well as its exposure to weather-related events. The rating outlook is based on the group’s adequate capital strength, consistently favorable operating trends and the support of its parent company, MetLife, Inc. ” In addition Best noted that “positive rating attributes include MetLife Auto & Home’s geographic diversification and the marketing advantage it derives from the established brand name recognition of MetLife.” The ratings also acknowledge management’s “focused operating strategy, extensive product knowledge and multiple distribution channels. The group has consistently generated capital through operating earnings reflective of disciplined underwriting and a steady stream of investment income. Behind these results is an enterprise risk management structure of oversight committees and work groups that maintain various procedures and contingency plans within MetLife Auto & Home.” Best pointed out that, although MetLife Auto & Home has incurred large catastrophic losses as a result of several hurricanes in recent years, “the group continues to reduce its catastrophe exposure through underwriting initiatives, coverage limitations, increased deductibles and reinsurance protection, which should favorably affect future operating earnings.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Toyota Motor Insurance Company (TMIC) of Cedar Rapids, Iowa, with stable outlooks. “The ratings reflect TMIC’s adequate capitalization and improved operating performance,” said Best. Its parent, Toyota Motor Insurance Services, Inc., whose ultimate parent is Toyota Motor Corporation, consistently “provided financial support to TMIC in order for it to maintain its current rating level,” Best continued. “TMIC plays a strategic role as the insurer of vehicle service agreements (VSA) and guaranteed auto protection (GAP) plans sold through Toyota, Lexus and affiliated dealerships throughout the United States.” However, “TMIC’s fluctuating operating results and leverage measures over a five-year period,” should be considered as offsetting factors. “To improve underwriting results, management instituted rate increases in its VSA program in both 2001 and 2004,” said Best. “GAP rate increases went into effect in 2005. As TMIC’s re-priced policies continue to earn out, results have improved. Beginning in 2005, TMIC changed the payment method of its administrative expenses from up front to as incurred. This change has lowered overall expense ratios.”

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