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Best’s News & Research Service - May 26, 2023 10:38 AM (EDT)

AM Best Revises Outlooks to Negative for Germania Farm Mutual Ins Assoc and Core Subs; Assigns Ratings to Germania P & C Ins Co

  • May 26, 2023 10:38 AM (EDT)
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Oldwick //BestWire// - AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of Germania Farm Mutual Insurance Association and its subsidiaries: Germania Fire & Casualty Company, Germania Insurance Company and Germania Select Insurance Company. Collectively, these companies comprise Germania Mutual Group (Germania). Concurrently, AM Best has assigned an FSR of B++ (Good) and a Long-Term ICR of “bbb+” (Good) to Germania Property & Casualty Insurance Company (GPC), a wholly owned subsidiary of Germania Farm Mutual Insurance Association. The outlook assigned to the FSR is stable while the outlook assigned to the Long-Term ICR is negative.

Additionally, AM Best has revised the Long-Term ICR outlook to negative from stable and affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Germania Life Insurance Company (Germania Life). The outlook of the FSR is stable. All companies are domiciled in Brenham, TX.

The Credit Ratings (ratings) of Germania reflect the group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

The revised outlooks consider the declining trend in Germania’s operating results over recent years. These trends arose due to pricing inadequacies in its core lines of business following severe catastrophic weather activity, along with increased costs for reinsurance and higher severity for auto due to inflation. As a result, the group’s combined ratio has been above breakeven in each of the past two years, highly influenced by excessive premium/policy growth as reinsurance prices increase. Ultimately, the deterioration has caused Germania’s five-year average operating return measures to lag the private passenger auto and homeowners’ industry composite and has begun to shift the group away from other carriers assessed as adequate. In the absence of improvement, the ratings are likely to be downgraded.

Despite the relative loss of surplus in recent years, Germania’s balance sheet continues to be supported by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and comprehensive reinsurance program. The business profile assessment reflects the group’s geographic and product concentration of primarily residential risks in a catastrophe-prone state. Lastly, Germania’s ERM practices remain appropriate and in line with its risk profile, with a focus on exposure management, pursuing rate adequacy, and aggressive re-underwriting of its current book.

The ratings of GPC reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate ERM.

GPC’s adequate operating performance assessment is primarily based on the company’s ability to execute its strategic business plan and meet expected operating results throughout the three-year forecast period. The company’s business profile is assessed as limited, reflecting the company’s position as a repurposed company primarily concentrated on writing select homeowners’ insurance in Texas.

The ratings reflect Germania Life’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate ERM.

This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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