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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 28, 2013 12:00 AM (EST)
A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Minnesota Lawyers Mutual Insurance Company (MLM) (Minneapolis, MN).
The rating actions reflect the continued improvement in MLM’s underwriting results, the success of its new rating model implemented over the last two years and maintenance of high policyholder retention levels. MLM’s newly modified premium rating structure is expected to continue to generate a better correlation of premiums to losses and improve its profitability.
The affirmation of the ratings reflects MLM’s excellent capitalization, recent overall favorable operating performance and good geographic spread of risk. Positive rating factors are derived from the company's focus and commitment to the members of the legal profession, which has led to its high policyholder retention levels. The company benefits from its excellent service, knowledge of the legal environment, longevity in the market and the payment of policyholder dividends to members during profitable periods. Although MLM continues to experience price competition and has exited a number of states in recent years, it has generally maintained consistent earned premium levels while conservatively growing its insured base in core markets.
These positive rating factors are partially offset by MLM's product concentration, the volatility in its results exhibited over the last several years and the deterioration in its underwriting and operating performance seen over the latest five-year period, though having improved recently. Additionally, there remains the execution risk associated with the continued implementation of underwriting initiatives put in place in recent years to return MLM to profitability.
Management has implemented a number of initiatives designed to favorably influence the company's financial performance over the near term. MLM began by initiating base rate increases and real estate area of practice surcharges, reducing high hazard practices, improving systems and exiting certain geographic locations where performance had not met the company's expectations. While its success may not necessarily be evident in the immediate future, sizeable operating profits were generated during 2012, as rate adequacy improved.
The ratings of MLM could be downgraded as a result of significant underwriting losses, such as from a decline in premium revenue, elevated loss costs due to claim severity and/or inadequate loss reserves.
Positive rating actions for MLM could result from continued favorable results stemming from initiatives put in place to restore its underwriting performance back to profitability while demonstrating less volatility in operating profitability going forward, and maintaining supportive capitalization.
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.