Best’s News & Research Service - June 10, 2015 09:39 AM (EDT)
A.M. Best Revises Outlook to Negative and Affirms Ratings of Millers Capital Insurance Company
- June 10, 2015 09:39 AM (EDT)
Oldwick //BestWire// - A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Millers Capital Insurance Company (Millers Capital) (Harrisburg, PA).
The ratings reflect Millers Capital's excellent risk-adjusted capitalization, historically profitable operating earnings driven primarily by investment income, and long-standing regional market presence. Partially offsetting these positive rating factors are the variability in underwriting performance during the recent five-year period given the impact of catastrophe losses that have weakened long-term pre-tax return on revenue measures, the high underwriting expense ratios relative to the commercial property composite and the challenges associated with growing profitably given the competitive market conditions. Despite the company's excellent capital position and management's initiatives to improve profitability over the near term, the outlook change reflects weak operating results during 2014 and through March 31, 2015, given the impact of weather-related losses that have driven underwriting losses and will challenge management to restore profitability in the near term.
The positive rating factors reflect management's commitment to maintain accurate pricing and conservative reserving practices as evidenced by significant levels of favorable reserve development in the prior year. Although the underwriting expense ratio is high relative to the commercial property composite, this is partially due to the mix of business written by the company. The measure will likely remain elevated over the near term as projected modest premium growth alone would be unable to reduce the expense ratio to more competitive levels. As evidenced by the negative impact of catastrophe losses on underwriting results in recent years, the company's results remain susceptible to the potential for weather-related losses given its geographic concentration in the Mid-Atlantic states. However, this risk is somewhat mitigated through ongoing underwriting initiatives to reduce the impact of weather-related losses, as well as a comprehensive reinsurance program that reduces Millers Capital's gross catastrophe exposure to more manageable net levels.
Factors that could result in downward rating pressure over the near term include ongoing weak operating earnings due to poor underwriting performance or an increase in catastrophe losses beyond expectations that weakens overall capitalization.
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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology .
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Insurance Holding Company and Debt Ratings
- Risk Management and the Rating Process for Insurance Companies
- The Treatment of Terrorism Risk in the Rating Evaluation
- Understanding BCAR for Property/Casualty Insurers
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.
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