Press Release - NOVEMBER 15, 2013

A.M. Best Upgrades Ratings of Indiana Lumbermens Mutual Insurance Company and Its Subsidiaries


CONTACTS:
 
Robert Valenta
Senior Financial Analyst
(908) 439-2200, ext. 5291
robert.valenta@ambest.com

Gerard Altonji
Assistant Vice President
(908) 439-2200, ext. 5626
gerard.altonji@ambest.com

Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
rachelle.morrow@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK, N.J. - NOVEMBER 15, 2013
A.M. Best Co. has upgraded the financial strength rating (FSR) to A- (Excellent) from B+ (Good) and issuer credit ratings (ICR) to “a-” from “bbb-” of Indiana Lumbermens Mutual Insurance Company (ILM) and its reinsured subsidiaries, Lone Star National Insurance Company and National Building Material Assurance Company. The outlook for these ratings has been revised to stable from negative. These companies are domiciled in Indianapolis, IN.

Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Pennsylvania Lumbermens Mutual Insurance Company (PLM) (Philadelphia, PA). The outlook for both ratings is stable.

The rating actions reflect the commencement of a reinsurance pooling agreement executed by ILM (and its two reinsured affiliates) and PLM, which became effective November 1, 2013, following the October 25, 2013 affiliation of ILM and its subsidiaries with PLM. The affiliation agreement was first announced in July 2013. The headquarters for the newly affiliated group is Philadelphia, with significant operations in Indianapolis.

The ratings reflect the combined entities’ solid level of capitalization, long history of strong operating performance prior to 2010 and established presence in their niche market of providing coverages to the lumber, woodworking and building materials industries. The ratings further acknowledge the benefits expected to be derived from the affiliation, including greater market presence within the niche, increased economies of scale, improved geographic and customer diversity and synergies expected to be realized in the near term. The ratings further acknowledge the group’s experienced management team and disciplined operating philosophy. These positive rating factors are offset by the group’s deteriorated underwriting and operating results in recent years and the risks associated with a relatively large investment allocation to equity securities.

The outlook reflects A.M. Best’s expectation that underwriting results will improve over the near term as rate increases and underwriting actions begin to gain traction, despite competitive market conditions. Furthermore, the group should benefit from a slowly improving economic environment as well as a continued recovery in the housing market.

Negative rating actions may occur if the group’s underwriting and operating results do not improve as quickly as A.M. Best expects based on management’s projections and/or risk-adjusted capitalization materially 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. Best’s 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.

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