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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 27, 2012 12:00 AM (EST)
A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and downgraded the issuer credit rating to “bbb” from “bbb+” of Alabama Municipal Insurance Corporation (AMIC) (Birmingham, AL). The outlook for both ratings is stable.
The rating actions reflect the increased leverage and unfavorable total return measures over the five-year period ending in 2010. Operating trends improved in 2011 as underwriting results turned profitable in the fourth quarter which, in turn, drove positive total return measures for the year. Nonetheless, underwriting and, to a lesser extent, investment leverage continue to be elevated relative to its peer composite. As a result, risk-adjusted capitalization (while supportive of AMIC’s current rating) lacks a strong capital cushion relative to its current ratings. Given the company’s overall earnings volatility over the past five years, its absence of a strong capital cushion is of additional concern to A.M. Best.
The outlook reflects A.M. Best's expectations for earnings stability, with positive results anticipated to generate an improved level of capitalization in the near term. Further, the likelihood of realized losses on AMIC’s investment portfolio has significantly decreased from prior years under its more conservative fixed income portfolio. The company also has a long history of serving its insureds, which has led to very high policyholder retention rates and afforded it premium stability. While the company lacks a comprehensive enterprise risk management program, this concern is somewhat offsetting its strong risk management services that it provides to its insureds. Nevertheless, the ratings could be negatively impacted by operating and/or investment losses that lead to a reduction in AMIC’s risk-adjusted capitalization.
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. Its insureds are primarily small and medium-sized municipalities in the state of Alabama and are required to be members of AMIC's sponsor, the Alabama League of Municipalities.
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: “Risk Management and the Rating Process for Insurance Companies” 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.