Best’s News & Research Service - September 04, 2014 02:48 PM (EDT)
A.M. Best Downgrades Ratings of RVOS Farm Mutual Insurance Group's Members
Oldwick //BestWire// - A.M. Best has downgraded the financial strength rating to C++ (Marginal) from B (Fair) and the issuer credit ratings to "b" from "bb" of RVOS Farm Mutual Insurance Group's (RVOS Group) members: RVOS Farm Mutual Insurance Company and Priority One Insurance Company. The outlook for all ratings remains negative. All companies are domiciled in Temple, TX.
The rating downgrades reflect the continued deterioration in RVOS Group's risk-adjusted capitalization and operating performance, due primarily to increased underwriting losses in recent years. As a single-state property writer in Texas, RVOS Group's underwriting performance has been susceptible to frequent and severe weather-related events along with risk of fire-related losses. This was evidenced over the past five years by sizable underwriting losses, which have continued into the first half of 2014. Through the first six months of 2014, the group has been impacted by seven weather-related events totaling nearly $12 million in gross and net losses. The ratings also reflect RVOS Group's elevated underwriting measures, which are primarily due to its historically volatile policyholders' surplus levels, while net premiums written continues to increase mainly as a result of rate increases.
RVOS Group's management has on-going initiatives to improve its overall financial results. The underwriting corrective actions include aggressive rate increases, stricter underwriting guidelines, frequent inspections, expense reductions, reviews of geographic concentrations and new technology initiatives with deeper pricing segmentation. In addition, RVOS Group's other income and net investment income have been positive and continue to partially offset its unfavorable underwriting performance. RVOS Group benefits from its long-standing market presence and strong agency relationships.
A.M. Best has maintained the negative outlook on the ratings. The ratings may be downgraded further if RVOS Group has a continuation of adverse operating results and declining risk-adjusted capitalization. Removal of the negative outlook is contingent upon RVOS Group's ability to reverse its adverse operating performance and improve its overall risk-adjusted 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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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