Press Release - JUNE 17, 2009
A.M. Best Affirms Ratings of Erie Insurance Group, Erie Family Life Insurance Company and Erie Indemnity Company
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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 17, 2009
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of Erie Insurance Group (Erie) and its property/casualty members. Concurrently, A.M. Best has affirmed the ICR of "a+" of Erie Indemnity Company (Erie Indemnity) [NASDAQ: ERIE], Erie's publicly-traded management company. Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a" of Erie's life affiliate, Erie Family Life Insurance Company (Erie Family Life). All companies are domiciled in Erie, PA, with the exception of Erie Insurance Company of New York, which is domiciled in New York State. The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)
The rating affirmations reflect Erie's consistently superior risk-adjusted capitalization, strong long-term operating performance and well-established regional market presence. The group benefits from the strength of its balance sheet, its high service reputation and agency partnering approach, which helps to strengthen agency loyalty. A.M. Best believes that Erie maintains prudent risk management capabilities and continues to enhance its effective enterprise risk management process, which identifies, measures and monitors existing and emerging risks.
Somewhat offsetting these positive rating attributes are Erie's geographic business concentration, which subjects its earnings to natural and man-made catastrophe losses. As part of its catastrophe management process, Erie utilizes catastrophe modeling and establishes risk limits to control catastrophic loss exposures. Also the group is exposed to cyclical changes occurring in the current market environment as reflected by sizable realized and unrealized investment losses in 2008, continuing into first quarter 2009 and is attributable to the disruption in the global financial markets. Depending on market conditions, Erie could incur additional impairment charges, which could have a material adverse effect on its operations and financial condition.
The ICR affirmation of Erie Indemnity recognizes its sound financial position despite recent surplus declines attributed to reduced income from management operations and investment losses related to the recent downturn in the financial markets. Erie Indemnity is dependent upon management fees paid by Erie Insurance Exchange (Exchange), which represents its principal source of revenue. Furthermore, Erie Indemnity is subject to credit risk related to unsecured receivables due from the Exchange for certain fees, costs and reimbursements. Erie Indemnity serves as attorney-in-fact for the insurance operations with nearly $792 million in shareholders' equity and no long-term debt obligations as of March 2009.
The affirmation of Erie Family Life's ratings acknowledges the integral position within Erie as evidenced by a substantial cash contribution to Erie Family Life made in 2009, consistent positive statutory operating results and favorable level of risk-adjusted capitalization based on Best's Capital Adequacy Ratio. Partially offsetting these positive rating factors are Erie Family Life's large exposure to interest-sensitive fixed annuities and the recent sizable capital losses from its investment portfolio.
The FSR of A+ (Superior) and ICRs of "aa-" have been affirmed for Erie Insurance Group and its following property/casualty members:
- Erie Insurance Exchange
- Erie Insurance Company
- Erie Insurance Company of New York
- Erie Insurance Property & Casualty Company
- Flagship City Insurance Company
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.