Press Release - MAY 18, 2011

A.M. Best Upgrades Issuer Credit Rating of Preferred Mutual Insurance Company


CONTACTS:
 Bob Podolski
Senior Financial Analyst
(908) 439-2200, ext. 5731
bob.podolski@ambest.com

Joseph Burtone
Assistant Vice President
(908) 439-2200, ext. 5125
joseph.burtone@ambest.com
Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
rachelle.morrow@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK, N.J. - MAY 18, 2011
A.M. Best Co. has upgraded the issuer credit rating (ICR) to "a+" from "a" and affirmed the financial strength rating of A (Excellent) of Preferred Mutual Insurance Company (Preferred) (New Berlin, NY). The outlook for both ratings is stable.

The upgrading of the ICR for Preferred reflects solid risk-adjusted capitalization, consistently favorable operating performance and a conservative operating philosophy. Operating profitability, driven primarily by solid net underwriting income in most recent years supplemented by steady net investment income, has enabled the company to continually grow its surplus over the past five years. In addition, loss reserves continue to develop favorably as reported on both an accident and calendar year basis. Preferred also benefits from a well-established regional market presence, enhanced technological capabilities and a management team that fosters strong agency relationships.

Partially offsetting these positive rating factors is Preferred's geographic risk concentration and an above average underwriting expense ratio, driven primarily by ongoing investments in staffing, advanced technology systems, profit-based commission costs and, more recently, increased New York State assessments. However, the above average expense ratio is partially mitigated by the sound underlying book of business whose pure loss ratios compare favorably to those of the private passenger standard auto and homeowners' composite. With nearly 60% of its direct premium written in New York, Preferred's capital position remains exposed to weather-related catastrophe events and regulatory and competitive market risks. The company maintains a comprehensive reinsurance program; however, that reduces the potential impact of catastrophic weather events to a manageable level of surplus.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Catastrophe Risk Management Incorporated Within the Rating Analysis"; "Catastrophe Analysis in A.M. Best Ratings"; "A.M. Best's Ratings & the Treatment of Debt"; and "Natural Catastrophe Stress Test Methodology." Methodologies 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.

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AMB# Company Name
000774 Preferred Mutual Insurance Company