CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JANUARY 20, 2012 12:00 AM (EST)
A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and the issuer credit rating to "a-" from "a" of Midstate Mutual Insurance Company (Midstate) (Auburn, NY). The outlook for both ratings is stable.
The rating actions result from Midstate's unfavorable operating performance in recent years, primarily due to elevated net underwriting losses, as reflected in its five-year average returns on revenue and equity that were significantly below the commercial property composite averages during the latest five-year period. Driving the unfavorable underwriting experience has been an increased frequency in weather-related fire and liability claims. Midstate has experienced significant losses attributable to weather-related events and major fire losses in recent years. The company's unfavorable underwriting and operating performance continued in 2011, as net underwriting losses have generated negative rates of return. Through the first nine months of 2011, the company's surplus decreased to 11%. Although Midstate's five-year average pure loss ratio compares similarly to the composite average, elevated loss adjustment and commission expense ratios resulted in an average combined ratio above the composite average. The company's single-state concentration of risk exposes it to weather-related events as well as to market, regulatory and judicial issues.
Partially offsetting Midstate's negative rating factors are its risk-adjusted capitalization, which remains strong despite a reduction in 2011 due to recent unfavorable operating results, and its local market presence that is derived from many years of experience in the upstate New York operating region. Midstate's initiatives to improve long-term operating performance include rate increases, increased underwriter training, a tightening of underwriting criteria and a suspension of binding authority and/or termination of unprofitable agents.
There may be pressure on Midstate's ratings going forward if its operating performance does not improve or if its risk-adjusted capitalization weakens further.
The principal methodology used in determining these ratings isBest's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Catastrophe Analysis in A.M. Best Ratings"; "Risk Management and the Rating Process for Insurance Companies"; and "Understanding BCAR for Property/Casualty Insurers." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.