Best’s News & Research Service - May 29, 2012 12:26 PM (EDT)
A.M. Best Affirms Ratings of Frankenmuth Mutual Insurance Company and Affiliates; Revises Outlook of ICR to Negative
OLDWICK, N.J. //BestWire// - A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit rating (ICR) of “a+” of Frankenmuth Mutual Insurance Company (Frankenmuth) and its affiliates, Ansur America Insurance Company, Patriot Insurance Company (Yarmouth, ME), ASure Worldwide Insurance Company and Fortuity Insurance Company. The outlook for the FSR is stable, while the outlook for the ICR has been revised to negative from stable.
A.M. Best also has affirmed the FSR of A (Excellent) and ICR of “a” of Patriot Life Insurance Company (Patriot Life), a subsidiary of Frankenmuth. The outlook for both ratings is stable. All companies are domiciled in Frankenmuth, MI, unless otherwise noted.
The affirmation of Frankenmuth’s ratings reflects its strong risk-adjusted capitalization, solid regional market presence and management’s ongoing efforts to reduce geographic concentration. Further, the stable outlook on the FSR acknowledges Frankenmuth’s historically profitable operations, strong agency relationships and A.M. Best’s expectations that operating results will stabilize and surplus growth will resume as a result of the corrective actions that have been implemented. These include rate increases, agency management initiatives and re-underwriting segments of its book of business.
The revised outlook for Frankenmuth’s ICR reflects the variability in underwriting performance over the last five years, which has caused operating performance to decline from historical levels. As a result, the group’s return measures have fallen below those of the commercial casualty industry composite. Most notably in 2008 and 2011, underwriting results suffered due to increased storm losses and severity in the personal automobile and workers’ compensation lines.
A.M. Best believes Frankenmuth is well positioned at its current FSR. Negative rating action on Frankenmuth’s ICR may occur over the near to mid term if there is a continued decline in the group’s underwriting profitability and/or a considerable deterioration in its risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio.
The ratings of Patriot Life reflect the formal guaranty issued by Frankenmuth with respect to Patriot Life’s liabilities, as well as the ongoing financial support provided by the parent. In addition, Patriot Life maintains an investment portfolio that is of high credit quality and provides the company with strong liquidity.
Partially offsetting these strengths are Patriot Life’s modest operating profile, lack of scale and losses reported as it establishes a market presence. Patriot Life is managing a closed block of ordinary life business as well as a modest level of new business written during 2011.
A.M. Best believes Patriot Life is well positioned at its current ratings. Downward rating pressure would occur if there was negative rating action on its parent company. Rating pressure also may occur if A.M. Best were to view Patriot Life as having lesser strategic value to its parent company or if there is a significant drop in the reported 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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; “The Treatment of Terrorism Risk in the Rating Evaluation”; and “Catastrophe Analysis in A.M. Best Ratings.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.