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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 22, 2010 12:00 AM (EDT)
A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of B+ (Good) and issuer credit rating (ICR) of "bbb-" of American European Insurance Group (AEIG) (headquartered in New Jersey). The ratings apply to American European Insurance Company (AEIC) (Concord, NH) and Rutgers Casualty Insurance Company (Rutgers) (Cherry Hill, NJ), which participate in an intercompany pooling arrangement and share common management and infrastructure.
The ratings reflect AEIG's adequate current and projected levels of capitalization, and the actions taken by the new management to improve operating results going forward. The group's largely conservative underwriting leverage and investment portfolios have resulted in risk-adjusted capitalization that adequately supports the current ratings. Further, management has implemented a defined action plan to reverse recent negative operating trends.
Offsetting these positive rating factors is the group's history of underwriting losses due (in part) to its heightened underwriting expense ratio and mixed accident year reserve development. In addition, first quarter results were negatively impacted by large northeast storm losses.
The revised outlook reflects the group's history of volatile operating results and the execution risk of reversing its current negative operating trends. Results have suffered in recent years as management runs off the group's personal lines business, resulting in adverse reserve development contributing to large underwriting losses in the past two years. Ultimately, AEIG has posted negative pre-tax return measures over a two-year period driven by large underwriting losses. Going forward, AEIG's challenge will be to reverse its negative operating trends and replace its largely profitable assumed business from the unrelated Merchants Mutual Insurance Company (MMIC). Beginning in 2007, the group assumed a percent of MMIC's book under a quota share arrangement with AEIG. This arrangement is currently unwinding and will cease at year-end 2013.
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.