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FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 06, 2018 01:05 PM (EST)
AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb” of First Mutual Insurance Company (First Mutual) (Smithfield, NC). The outlook of the FSR remains stable.
The Credit Ratings reflect First Mutual’s balance sheet strength, which AM Best categorizes as adequate, as well as its strong operating performance, limited business profile and marginal enterprise risk management (ERM).
The Long-Term ICR outlook revision to positive reflects management’s plans for continued enhancements in formalizing corporate governance and risk management procedures within its ERM program. Over time, the expectation is for the ERM program to be used strategically for exposure management and reinsurance decision making. The Long-Term ICR outlook further reflects the expectation of maintaining adequate balance sheet strength and strong operating performance despite moderate volatility due to weather-related events, fire losses and competitive market conditions.
The balance sheet strength is supported by the strongest level of risk-adjusted capitalization as measured by BCAR at the 99.6 % VaR confidence level, low underwriting leverage and strong liquidity as reflected by the company’s highly liquid investment portfolio. The balance sheet is further supported by the strengthened reinsurance program in 2018 and consistently favorably loss reserve trends, partially offset by its elevated reinsurance dependence and limited financial flexibility as a mutual insurer.
The company’s strong operating performance benefits from consistently profitable underwriting results based on management’s strict underwriting and pricing discipline. The business profile is limited based on the company’s product line and geographic concentration with business written mostly in North Carolina. First Mutual offers products primarily for homeowners, inland marine (small commercial risks such as hog and poultry farm) and farmowners. Growth initiatives in 2018 included new agency appointments in the middle and western parts of North Carolina, Tennessee and South Carolina. While AM Best considers the ERM framework to be marginal for the company’s size and scope of operations, risk management capabilities have improved in 2018, as reflected by the enhanced reinsurance program that is better aligned with the risk profile of the company. Additionally, formalization of the ERM program continues to evolve.
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