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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MARCH 27, 2012 12:00 AM (EDT)
A.M. Best Co. has downgraded the issuer credit ratings (ICR) to “a” from “a+” and affirmed the financial strength rating (FSR) of A (Excellent) of Central Insurance Companies (Central) and its member companies, Central Mutual Insurance Company, All America Insurance Company (both of Van Wert, OH) and CMI Lloyds (Irving, TX). The outlook for all ratings is stable.
The affirmation of the FSR reflects Central’s strong risk-adjusted capitalization, which remains supportive of the rating despite several consecutive years of unfavorable operating performance and an overall decline in surplus subsequent to 2007. Central’s business strategy, which keeps its net written premium underwriting leverage ratio at a moderate level, has contributed to its favorable capitalization. The FSR also recognizes Central’s competitive advantages within its core personal and commercial segments, its high quality customer service, strong agency relationships and geographic spread of risk.
The downgrading of the ICRs stems from Central’s negative pre-tax returns on revenue in recent years and a negative five-year average total return on surplus for the period ending 2011. In recent years, Central has experienced weather-related losses well in excess of its historical average. Solid net investment income partially offset significant underwriting losses during this period. Central is addressing its unprofitable results through targeted rate changes, particularly increases for personal lines coverages.
There could be downward pressure on Central’s ratings going forward if the unfavorable operating performance of recent years continues or if risk-adjusted capitalization weakens.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Risk Management and the Rating Process for Insurance Companies”; “Rating Members of Insurance Groups”; and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Rating Methodology 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.