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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - DECEMBER 08, 2010 12:00 AM (EST)
A.M. Best Co. has downgraded the financial strength rating to B++(Good) from A- (Excellent) and issuer credit rating to "bbb+" from "a-" of Alabama Municipal Insurance Corporation (AMIC) (Montgomery, AL). The outlook for both ratings has been revised to stable from negative.
The rating actions reflect AMIC's continued and significant realized and unrealized capital losses that have led to declines in both total return measures and surplus. Such losses have led to a drop in AMIC's risk-adjusted capitalization. The rating actions further reflect AMIC's diminishing underwriting results and cash flow measures relative to its historical levels. Total return measures, which include investment results, have been negatively impacted by the sale of some of AMIC's historically large asset-backed and mortgage-backed securities, as well as the impact from marking its non-investment grade securities to market. The sale of these holdings were the result of AMIC's efforts to bring its investment portfolio to a more conservative position. Negatively impacting AMIC's underwriting results in recent years are current soft market conditions, large isolated losses and loss trends specific to its market niche.
Positive rating factors include AMIC's historically favorable operating performance and the company's tax-exempt status. Furthermore, AMIC benefits from operating within a relatively favorable legal environment as Alabama law places tort caps on awards to successful plaintiffs in state level lawsuits against municipalities. Moreover, the company's long history of serving its insured base has led to very high policyholder retention rates.
The outlook reflects A.M. Best's expectation that realized losses on the investment portfolio will likely decrease from prior years and anticipated favorable operating returns will support current capitalization, barring any additional charges to surplus.
AMIC writes package policies consisting of general liability, police liability and public officials' errors and omissions coverages, as well as automobile, property, inland marine, crime and bond coverages. AMIC insureds are primarily small and medium-sized municipalities in Alabama and are required to be members of AMIC's sponsor, the Alabama League of Municipalities.
The principal methodology used in determining these ratings is Best'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: "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.