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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 22, 2012 12:00 AM (EST)
A.M. Best Co. has affirmed the financial strength ratings of A- (Excellent) and issuer credit ratings of “a-” and revised the outlook to negative from stable for Cumberland Insurance Group (CIG), its member, The Cumberland Mutual Fire Insurance Company (Cumberland Mutual) and Cumberland Insurance Company, Inc. (CIC). All companies are headquartered in Bridgeton, NJ.
The negative outlook for CIG is based on its unfavorable five-year operating performance and surplus deterioration, which was driven by significant underwriting losses and gradually declining net investment income. The company’s underwriting deficits were primarily attributable to increased storm losses, greater fire loss activity and adverse loss reserve development on its homeowners’ and commercial multi-peril lines of business. Due to its property concentration in the northeast, CIG is exposed to weather-related losses, as well as adverse judicial and regulatory actions. CIG’s ratings are based on the consolidation of Cumberland Mutual and its wholly owned but separately rated subsidiary, CIC. The negative outlook for CIC is based upon the deterioration in the operating performance of its ultimate parent, Cumberland Mutual.
The affirmation of CIG’s ratings is based on its strong risk-adjusted capitalization and long-standing market presence as a leading property writer in New Jersey. CIG’s capital position is primarily derived from its modest underwriting leverage, which compares favorably to industry norms. CIG maintains its established market presence and long-standing relationships through its independent agency force. In an effort to improve underwriting results, CIG is in the process of implementing numerous strategic initiatives to update its technology and processes. These strategic initiatives include implementing rate adjustments, de-leveraging unprofitable premium, enhancing pricing tools, implementing stricter underwriting guidelines and improving rate adequacy on coastal accounts. In addition, CIG has continued its strategy of reducing its geographic concentration through the expansion of its core products outside of New Jersey. A comprehensive reinsurance program reduces CIG’s net exposure to a catastrophe event to a manageable level.
CIC’s ratings are based on its solid risk-adjusted capitalization, improved earnings in recent years and local market knowledge. In addition, the ratings recognize the financial and operational support and common management provided by its ultimate parent, Cumberland Mutual, a multi-line carrier writing business primarily in New Jersey. While CIC primarily writes workers’ compensation business in the highly competitive and regulated New Jersey market, its geographic expansion and introduction of new product offerings should serve to reduce its concentration of risk over the near term. In recent years, CIC’s operating earnings significantly increased, driven by favorable underwriting earnings, solid investment income and realized capital gains from the sale of a substantial portion of its common stock portfolio. The improved underwriting results were driven by improved workers’ compensation loss experience and favorable loss reserve development.
For CIG, negative rating actions could occur from the continuation of its adverse operating performance and/or surplus deterioration that has been reported in recent years, driven by severe weather-related losses. For CIC, negative rating actions could be the result of unfavorable operating performance and/or surplus deterioration, driven by adverse development in its workers’ compensation line of business or a downgrade of the ratings of Cumberland Mutual.
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: “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; and “The Treatment of Terrorism Risk in the Rating Evaluation.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.