Best’s News & Research Service - February 02, 2015 02:17 PM (EST)
A.M. Best Revises Outlook to Negative for Members of Pennsylvania Lumbermens Group
- February 02, 2015 02:17 PM (EST)
Oldwick //BestWire// - A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of "a-" of Pennsylvania Lumbermens Mutual Insurance Company (PLM) (Philadelphia, PA), Indiana Lumbermens Mutual Insurance Company (ILM) and ILM's reinsured subsidiaries, Lone Star National Insurance Company and National Building Material Assurance Company, collectively known as Pennsylvania Lumbermens Group, which operate under an inter-company pooling agreement. ILM and its subsidiaries are domiciled in Indianapolis, IN.
The outlook revision to negative reflects significant deterioration in results of the combined entities, with underwriting and operating losses reported since 2010, and challenges the group faces to improve results in the near term given ongoing, albeit improving, competitive market conditions in the niche. Driving unfavorable underwriting performance in recent years has been increased large, high severity property losses, particularly in the heavy manufacturing book of business, and significant catastrophe-related losses. Results in 2014 were also impacted by management's decision to strengthen loss reserves on a number of claims at ILM following the Oct. 25, 2013, affiliation of ILM and its subsidiaries with PLM.
The affirmation of the ratings reflects the combined entities' solid level of capitalization, long history of strong operating performance prior to 2010 and established presence in its niche market of providing coverages to the lumber, woodworking and building materials industries. In addition, the ratings further acknowledge the group's experienced management team and steps being taken to place the group on a profitable footing. Furthermore, the ratings reflect the benefits derived from the affiliation, including greater market presence within the niche, increased economies of scale and improved geographic and customer diversity. These positive rating factors are offset by the group's deteriorated underwriting performance and operating results in recent years.
Negative rating actions may occur if the group's underwriting and operating results do not improve as A.M. Best expects, based on management's projections, or should risk-adjusted capitalization materially weaken.
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.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
- Equity Credit for Hybrid Securities
- The Treatment for Terrorism Risk in the Rating Evaluation
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