Best Affirms American Modern Insurance Group Ratings

March 12, 2010

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of American Modern Insurance Group of Amelia, Ohio and its property/casualty members. The outlook for all ratings is stable.

Best noted that the companies of American Modern are owned by Munich-American Holding Corporation, the U.S.-based subsidiary of Munich Reinsurance Company.

The ratings of American Modern reflect its “solid risk-adjusted capitalization, favorable operating performance and continued strategy as a provider of diversified specialty personal lines insurance products,” said Best.

“These positive rating factors are derived from management’s disciplined and focused operating strategies. American Modern has achieved significant surplus growth over the previous five-year period through solid investment income, and in most years, favorable underwriting performance.

“As American Modern continues to offer specialty personal lines products with a niche market focus, it provides a significant competitive advantage, particularly in terms of pricing, claims adjusting and overall marketing strategies. This has contributed to American Modern’s ability to sustain premium growth in a competitive environment.”

Best added that the ratings also acknowledge the financial flexibility afforded American Modern as part of the Munich-American Holding Corporation organization.

However, Best indicated that American Modern’s “above average underwriting leverage and elevated underwriting expense ratio relative to industry composite norms and its susceptibility to catastrophe events, as approximately 40 percent of its business is residential property,” constitute offsetting factors.

The elevated underwriting expense ratio is primarily attributable to American Modern’s “competitive commission expense structure, particularly in terms of its profitability-based incentives,” Best explained. “As American Modern has a concentration of business in the residential property market, it is exposed to the impact of weather-related catastrophes. However, American Modern continues to maintain its reinsurance programs and more selectively spread its geographical risks in catastrophe-prone areas to mitigate potential effects of future catastrophic events.”

Best also has affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of American Modern Life Insurance Company (American Modern Life) (Cincinnati, OH) and the FSR of ‘B++’ (Good) and ICR “bbb” of Southern Pioneer Life Insurance Company (Trumann, AR). The outlook for these ratings is stable.

These ratings are based on the life companies’ “strong risk-adjusted capitalization and the support of American Modern,” Best explained. “Partially offsetting these factors are the life companies’ modest earnings performance, their relatively small contributions to the parent organization and the decline in direct premiums written due to the economic environment.

Best summarized the ratings affected as follows:
The FSR of ‘A+’ (Superior) and ICRs of “aa-” have been affirmed for the American Modern Insurance Group and its following property/casualty members:
• American Modern Home Insurance Company
• American Family Home Insurance Company
• American Western Home Insurance Company
• American Modern Surplus Lines Insurance Company
• American Modern Select Insurance Company
• American Southern Home Insurance Company
• American Modern Insurance Company of Florida, Inc.
• First Marine Insurance Company
• American Modern Lloyds Insurance Company

Source: A.M. Best –

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