CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 18, 2013 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 of bbb- of Imperial Fire and Casualty Insurance Company (Imperial) (Opelousas, LA).
The rating actions reflect Imperials negatively trending underwriting performance, which could not be offset by its declining investment income. This has led to pre-tax operating losses in four of the past five years. In addition, increased underwriting losses in 2011 and 2012, as reflected by combined ratios of approximately 108% and 110%, respectively, primarily caused by catastrophe and other weather-related events have hindered the companys capital base. This is reflected by an approximately 9% decline in surplus in 2011, followed by an 11% surplus loss in 2012, which has caused risk-adjusted capitalization to decline over the past year.
Additionally, Imperials core personal auto line of business has underperformed partly due to unfavorable results attributed to the legal environment in its relatively newly acquired Florida book, as well as recent adverse development primarily in Louisiana. However, recent results in Florida have shown improvement. Additionally, weather-related losses primarily in the Texas and Louisiana property books of business, have led Imperial to undertake several underwriting initiatives including taking aggressive rate increases, placing a greater emphasis on risk management tools such as policy scoring and territorial pricing, and exploring additional capital resources. To this end, Imperial recently has been acquired by Southport Lane, a New York-based private equity firm that provides Imperial with significant financial flexibility and greater access to capital. However, despite the benefits to Imperial from a potentially significant increase to its surplus base and risk-adjusted capitalization, and the efforts to turn around its underwriting performance and operating results, the company still faces a challenging operating environment for 2013.
Although Imperials risk-adjusted capitalization levels is consistent with its current rating level, the negative outlook implies that a downgrading of the ratings could occur should there be a continued deterioration in the companys risk-adjusted capitalization levels and/or a continuation of its negative operating performance trend. While upward movement in the ratings is unlikely in the near term, positive rating actions could occur if there were 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. Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.