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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - NOVEMBER 21, 2013 12:00 AM (EST)
A.M. Best Co. has assigned a financial strength rating (FSR) of A- (Excellent) and an issuer credit rating (ICR) of “a-” to Cherry Valley Cooperative Insurance Company (Cherry Valley). The outlook assigned to both ratings is stable.
Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of “a+” of Erie and Niagara Insurance Association (Erie & Niagara), which manages the affairs of Cherry Valley. The outlook for these ratings is stable. Both companies are located in Williamsville, NY.
Cherry Valley’s ratings reflect its strong risk-adjusted capitalization, favorable operating results in more recent years and the historical support of it receives from Erie & Niagara, with which it shares all infrastructure, including management and employees. Erie & Niagara also maintains board control of Cherry Valley. Offsetting these positive rating factors is Cherry Valley’s limited profile, heightened expense ratios, nominal investment income and relative lack of financial flexibility.
Cherry Valley’s strong risk-adjusted capitalization recognizes its very low underwriting leverage. The company’s favorable underwriting results follow its management’s disciplined underwriting approach, niche product expertise and proficiency in establishing effective risk attachment points on its assumed reinsurance programs. Erie & Niagara’s management provides all underwriting and policy related services. Furthermore, members of Erie & Niagara’s board of directors have majority control of Cherry Valley’s board. Given Erie & Niagara’s history of strong operating results, A.M. Best’s expects similar trends will continue (as they have in recent years) at Cherry Valley.
Nonetheless, Cherry Valley is limited in its scope with very low premium and surplus levels. Given the relative size of the company’s premium volume, outcomes are more susceptible to swings in overall loss experience. The company’s distribution network is limited to a single independent agent and products marketed through Erie & Niagara. Moreover, writings are limited to a single state subjecting results to weather, regulatory and regional economic related risks. Somewhat offsetting Erie & Niagara’s limited scope is its niche product expertise along with its demonstrated underwriting discipline.
Erie & Niagara’s ratings acknowledge its excellent risk-adjusted capitalization, sustained operating profitability and favorable balance sheet liquidity. Somewhat offsetting these positive rating factors are Erie & Niagara’s very modest level of adverse loss reserve development reported in select years and the underwriting and regulatory risks associated with being a mono-state insurer. The outlook is reflective of the company’s strong risk-adjusted capitalization and A.M. Best’s expectation that it will continue to generate profitable underwriting and operating results.
Erie & Niagara’s ratings could be negatively impacted by a material decline in its operating results and/or its risk-adjusted 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.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.