A.M. Best Affirms Financial Strength Rating & Downgrades Issuer Credit Ratings of State Automobile Mutual Insurance Company &...
May 18 2012 - 1:58PM
Business Wire
A.M. Best Co. has affirmed the financial strength rating
(FSR) of A (Excellent) and downgraded the issuer credit ratings
(ICR) to “a” from “a+” of State Automobile Mutual Insurance
Company (State Auto) and its operating subsidiaries.
Concurrently, A.M. Best has downgraded the ICR to “bbb” from “bbb+”
and the debt rating to “bbb” from “bbb+” on $100 million of 6.25%
senior unsecured notes due 2013, issued by State Auto’s
intermediate holding company, State Auto Financial
Corporation (STFC) [NASDAQ: STFC]. The outlook for all ratings
is stable. The above named companies are headquartered in Columbus,
OH. (See below for a detailed listing of the companies.)
The ICR and debt downgrades are based on State Auto’s
deterioration in underwriting results, operating earnings and
policyholder surplus in recent years, driven by an increased
frequency and severity of property catastrophe losses.
The ratings reflect State Auto’s strong risk-adjusted
capitalization, long-standing regional market presence,
well-established agency relationships, solid brand name recognition
and diversified product offerings. State Auto also benefits from
its software technology, which further enhances and cultivates
agency relationships while improving overall operating
efficiencies. Solid investment income, expanded pricing models, as
well as improved risk management have contributed to modest
operating earnings over the previous five-year period. The ratings
further reflect the financial flexibility and access to capital
through STFC.
State Auto’s negative rating factors include its exposure to
localized tornado/hail storms and hurricane activity. These
exposures historically have been mitigated through comprehensive
reinsurance programs and available credit facilities as well as
underwriting initiatives aimed at reducing catastrophe exposures.
However, the increased frequency and severity of storm losses in
recent years has adversely impacted State Auto’s underwriting
profitability, overall earnings and policyholder surplus. In
addition, the group’s underwriting results remain pressured by its
above average underwriting expense ratio, primarily related to
agents’ commissions.
State Auto has recently implemented numerous strategic
initiatives to improve underwriting results. These initiatives
include rate increases in a number of states and lines of business,
a reduction of property exposures in catastrophe-exposed areas, the
implementation of increased wind and hail deductibles, an enhanced
insurance-to-value program, the increased use of property
catastrophe and quota share reinsurance and agency management
actions.
While the outlook is stable, negative rating actions could occur
if State Auto has a continuation of operating losses and/or
deterioration in risk-adjusted capitalization, driven by
weather-related catastrophe losses.
The FSR of A (Excellent) has been affirmed and the ICRs have
been downgraded to “a” from “a+” for State Automobile Mutual
Insurance Company and its following operating subsidiaries:
- State Auto Property and Casualty
Insurance Company
- Milbank Insurance Company
- Farmers Casualty Insurance
Company
- State Auto Insurance Company of
Ohio
- Meridian Citizens Mutual Insurance
Company
- Patrons Mutual Insurance Company of
Connecticut
- Litchfield Mutual Fire Insurance
Company
- Beacon National Insurance
Company
- Meridian Security Insurance
Company
- State Auto Florida Insurance
Company
- State Auto Insurance Company of
Wisconsin
- Beacon Lloyds Insurance
Company
- Rockhill Insurance Company
- Plaza Insurance Company
- American Compensation Insurance
Company
- Bloomington Compensation Insurance
Company
The methodology used in determining these ratings is Best’s
Credit Rating Methodology, which
provides a comprehensive explanation of A.M. Best’s rating process
and contains the different rating criteria employed in the rating
process. Key criteria utilized include: “Catastrophe Analysis in
A.M. Best Ratings”; “Insurance Holding Company and Debt Ratings”;
“Rating Members of Insurance Groups”; “Risk Management and the
Rating Process for Insurance Companies”; “The Treatment of
Terrorism Risk in the Rating Evaluation”; and “Understanding BCAR
for Property/Casualty Insurers.” Best’s Credit Rating Methodology
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. For
more information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
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