Best’s News & Research Service - May 01, 2014 04:20 PM (EDT)
A.M. Best Affirms Ratings of Penn National Insurance Companies' Members
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" of Pennsylvania National Mutual Casualty Insurance Company (Penn Mutual) and its subsidiaries, Penn National Security Insurance Company, Founders Insurance Company and Partners Mutual Insurance Company (collectively referred to as Penn National Insurance Companies). Concurrently, A.M. Best has affirmed the debt rating of "bbb" on $50 million, 9.5% surplus notes, due 2034 issued by Penn Mutual. The outlook for all ratings remains negative. All companies are headquartered in Harrisburg, PA, except for Partners Mutual Insurance Company, which is headquartered in Waukesha, WI.
The ratings reflect Penn National's excellent risk-adjusted capitalization, improving underwriting performance in 2013 and generally profitable operating results during the recent five-year period. Management's initiatives to improve underwriting performance by eliminating the impact of lead-based paint claims through reinsurance, expanding use of predictive modeling and implementing enhanced underwriting standards to reduce weather-related losses have benefitted results, particularly in 2013.
Partially offsetting these positive rating factors are the deterioration in Penn National's underwriting results, particularly in the 2010--2012 period, which were driven by aforementioned issues with lead-based paint and weather-related claims. The group's returns on revenue and equity do not compare favorably to the composite averages over the long term. In addition, while management has acted to enhance Penn National's geographic diversification, the group remains somewhat concentrated with 39% of premiums written in Pennsylvania, which exposes the group to the potential for elevated weather-related claims.
The negative outlook reflects A.M. Best's concerns with the trend in Penn National's results through 2012 and the potential for that negative trend to continue. While noting the improvement in results in 2013, the negative outlook will remain until the improved performance is sustained over a longer period.
Factors that could result in downward ratings pressure include a return to ongoing weak operating earnings, emergence of unanticipated lead paint claims that negatively impact results and/or a material deterioration in performance or risk-adjusted capital of Penn National. Positive rating action could be taken on the outlook should the company's improved performance demonstrated in 2013 be sustained over time.
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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