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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 27, 2006 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-"of Merchants Insurance Company of New Hampshire, Inc. (MNH) (Buffalo, NY). Both ratings have stable outlook.
The ratings reflect MNH's excellent capitalization and sustained operating profitability, while recognizing its strategic relationship with its minority owner, Merchants Mutual Insurance Company (Merchants Mutual) (Buffalo, NY) and its regional market strategy in the Northeast.
These positive ratings factors are somewhat offset by MNH's comparatively high expense structure, restricted ability to accumulate internal capital due to continued stockholder dividends and the inherent challenges associated with high litigation costs and localized weather patterns given its heavy Northeast orientation.
The positive rating factors are derived from MNH's conservative underwriting leverage and improved underwriting results in recent years. The underwriting results have recently benefited from favorable loss reserve development, various underwriting actions implemented to improve profitability and lower than normal storm activity. As a result of these factors and low underwriting leverage in recent years, the company has generated sufficient investment income to offset underwriting losses over the last five years. The ratings also acknowledge MNH's business affiliation with and minority ownership interest by Merchants Mutual, including pooling and servicing agreements with Merchants Mutual.
Although underwriting results have recently improved, MNH's long-term underwriting results have been unfavorable driven by marginal agents, increased loss severity trends, the use of scheduled credits and a high expense ratio. The expense disadvantage is a result of above average commissions and other underwriting expenses as well as declining premium volume over the last five years.
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