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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 18, 2012 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating to bbb- from bbb of Imperial Fire and Casualty Insurance Company, Inc. (Imperial) (Opelousas, LA). The outlook has been revised to stable from negative.
The rating actions reflect Imperials generally negative underwriting performance, which could not be offset by its declining investment income. This has led to pre-tax operating losses in three of the past five years. In addition, increased underwriting losses in 2011 as reflected by a combined ratio of approximately 108%, primarily caused by catastrophe and other weather-related events, has hindered the companys capital base. This is reflected by an approximately 10% decline in surplus in 2011, which has caused risk-adjusted capitalization to somewhat decline over the past year.
Additionally, Imperials core personal auto line of business has continued to underperform partly due to unfavorable results from its relatively newly acquired Florida book. Weather-related losses primarily in the Texas property book, has led Imperial to undertake several underwriting initiatives including restraining net premium exposures, taking aggressive rate increases, placing a greater emphasis on risk management tools such as policy scoring and territorial pricing, and exploration of additional capital resources. However, despite these efforts to turn around its operating performance and improve its risk-adjusted capitalization, the company still faces a challenging operating environment for 2012.
Although Imperials risk-adjusted capitalization level is consistent with its current rating level, further downward movement in the form of a revised outlook and/or a downgrading of the ratings could occur should there be a continued deterioration in Imperials risk-adjusted capitalization levels and/or a continuation of its recent negative operating performance trend. While upward movement in the ratings is unlikely in the near term, an eventual improvement in the ratings and/or outlook will require significant improvement in the companys risk-adjusted capitalization, along with a turnaround in its underwriting performance and operating results.
The methodology used in determining these ratings is Bests Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bests rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: Understanding BCAR for Property Casualty Insurers; Risk Management and the Rating Process for Insurance Companies; Catastrophe Analysis in A.M. Best Ratings; and Equity Credit for Hybrid Securities. Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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