Best’s News & Research Service - February 05, 2015 09:02 AM (EST)
A.M. Best Affirms Ratings of New Jersey Manufacturers Insurance Company; Downgrades Ratings of New Jersey Re-Insurance Company
- February 05, 2015 09:02 AM (EST)
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating of A++ (Superior) and the issuer credit ratings (ICR) of "aa+" of New Jersey Manufacturers Insurance Company (NJM). The outlook for these ratings is negative. In addition, A.M. Best has downgraded the FSR to A+ (Superior) from A++ (Superior) and the ICR to "aa-" from "aa+" of New Jersey Re-Insurance Company (NJRe), a wholly owned subsidiary of NJM. The outlook for NJRe was revised to stable from negative.
Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICRs of "a" of NJM's two other subsidiary companies, New Jersey Casualty Insurance Company (NJC) and New Jersey Indemnity Insurance Company (NJI). The outlook for these ratings is stable. All companies are domiciled in West Trenton, NJ.
The ratings reflect NJM's superior capitalization, generally strong operating performance in recent years, as well as its dominant local market presence and expertise. NJM's positive rating attributes are derived from management's adherence to sound operating fundamentals that are reflected in its moderate underwriting leverage, conservative investment risk and prudent loss reserving practices. Its direct marketing approach and efficient cost structure have consistently produced low underwriting expense ratios. This expense advantage has enabled NJM to provide significant policyholder dividends while maintaining solid risk-adjusted capitalization. In addition, these policyholder dividend payments have considerably enhanced customer loyalty, resulting in superior business persistency. NJM's statewide market leader position is augmented by its extensive workers' compensation managed care capabilities, its own preferred provider network, and reputation for providing quality service.
These positive rating attributes are partially offset by the group's business concentration, mainly within New Jersey. As a result, NJM is exposed to risk from market volatility, legislative changes and judicial decisions. This concentration also exposes it to severe catastrophic weather events; the four largest weather events in NJM's history have occurred in the latest five-year period, including Hurricane Irene in 2011 and Superstorm Sandy in 2012. The group's historical track record of consistently strong earnings, superior capital position and extensive local market knowledge serve to somewhat offset the concentration and regulatory concerns. Nonetheless, NJM continues to review its rates, underwriting criteria and concentration in an effort to return the company to prior levels of operating profitability.
The negative outlook reflects A.M. Best's concerns for the challenges the group faces to return to a long term trend in positive underwriting results which are commensurate with the high rating level. Although the pre-dividend combined ratio results for 2014 showed improvement, NJM faces some execution risk as the company moves to refine underwriting criteria and pricing structure beginning in 2015, in an effort to improve results.
The ratings for NJC and NJI recognize their superior capitalization and positions as residual writers for the workers' compensation (NJC) and auto (NJI) markets of NJM. The ratings also acknowledge the common management and infrastructure shared with NJM.
The ratings for NJRe also recognize its strong level of risk-adjusted capitalization, as well as common management and infrastructure shared with NJM. However, the rating downgrades acknowledge that several underwriting changes have been implemented at NJM, which diminish the individual business profile of NJRe as most of the auto business it currently writes will be written by NJM.
Regarding future rating movement, NJM's return to a trend of operating profitability would be necessary for A.M. Best to consider revising the outlook back to stable. Conversely, at this rating level, a trend of difficult underwriting experience resulting in additional operating losses would lead to consideration of downward rating movement. Any consideration of rating movement for NJC, NJI or NJRe would most likely hinge on the performance of NJM or future changes in business profiles of the individual companies.
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
- The Treatment of Terrorism Risk in the Rating Evaluation
- Understanding BCAR for Property/Casualty Insurers
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .
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