SEPTEMBER 28, 2012 12:00 AM (EDT)
A.M. Best Upgrades Issuer Credit Ratings of Optimum General Companies Members
Senior Financial Analyst
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Managing Senior Financial Analyst
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Assistant Vice President, Public Relations
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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - SEPTEMBER 28, 2012 12:00 AM (EDT)
A.M. Best Co. has upgraded the issuer credit ratings (ICR) to bbb+ from bbb and affirmed the financial strength rating of B++ (Good) for the members of the Optimum General Companies (OGIG), which include: Optimum Insurance Company, Inc. (OIC), Optimum Farm Insurance Inc. (OFIC) and Optimum West Insurance Company (OWIC) (British Columbia, Canada). The outlook for all ratings is stable. All companies are domiciled in Quebec, Canada, unless otherwise specified.
The ICR upgrades reflect OGIGs continued consistent operating results and its favorable reserve development on both an accident and calendar year basis. Partially offsetting these positive rating factors are the competitive pricing pressures on OGIG, particularly in commercial lines and the rate adequacy within the Canadian market.
OGIGs management continues to monitor and improve performance, underwriting guidelines and rate adequacy. Indications are favorable as its book of business provides better balance with improved performance in several key financial measures, including operating earnings, net investment income and reserve development. Management continues to demonstrate its ability to effectively operate through insurance cycles and a rapidly changing investment market.
Although OGIG has experienced substantial improvement during the latest eight-year period, going forward it may be challenged to balance profitability and leverage with projected future growth. Overall, surplus appreciation has been steady and consistent at an average of six percent per year for the past five years, while simultaneously paying dividends to its holding company. However, OGIG remains somewhat behind the industry average for surplus appreciation.
If OGIG continues to create returns through favorable underwriting performance and investment earnings, which consistently and substantively increase surplus, further positive rating actions are possible over the near term. Although A.M. Best does not expect to downgrade (or place a negative outlook on) the ratings of the members of OGIG in the near to mid term, such actions would ensue if: it were to incur material losses in its capitalization; have a severe reduction in the profitability of its core book of business; be unable to contain the groups exposure to catastrophic events within its underwriting footprint with the current set of preventative measures or have substantial adverse reserve development relative to its peers, as well as the industrys averages.
The methodology used in determining these ratings is Bests Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bests rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: Risk Management and the Rating Process for Insurance Companies; Understanding BCAR for Property/Casualty Insurers; and Rating Members of Insurance Groups. Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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