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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 23, 2012 12:00 AM (EST)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” and revised the outlook to negative from stable of The Republic Group (Republic) (Dallas, TX) and its property/casualty members. (See below for a detailed listing of the companies.)
Republic’s revised outlook reflects its weakened underwriting performance in recent years and adverse reserve development occurring in earlier accident years, which remains a focus of ongoing management initiatives. The underwriting losses primarily stemmed from catastrophe-related claims activity since 2008. Republic has been exposed to hurricane losses as well as localized wind, hail and tornado claims, arising from recent extreme weather anomalies. Adverse reserve development is primarily due to the commercial lines segment. Republic’s adverse reserve development results in an increase in its loss reserves and is not an immediate cash outflow item. In addition, Republic maintains a geographic concentration of risk. With approximately 60% of its direct premiums written in Texas, the group is subjected to above average risks from changes in the economic, judicial and regulatory environment, as well as localized competition and weather-related events.
Despite these concerns, Republic sustains excellent risk-adjusted capitalization, which is derived from its reasonable underwriting and investment leverage. Furthermore, Republic maintains sound risk management, which includes a thorough underwriting process, a prudent reinsurance program and a long-standing local market presence. The ratings also consider the company’s ongoing initiatives designed to improve underwriting performance.
Factors that could result in future negative rating actions include a continued deterioration in Republic’s underwriting performance, continued adverse reserve development or a significant erosion of its capital base. Key rating triggers that could result in the removal of the negative outlook include sustained improvement in Republic’s underwriting performance, while maintaining strong risk-adjusted capitalization.
The FSR of A- (Excellent) and ICRs of "a-" have been affirmed for The Republic Group and its following property/casualty members:
- Republic Fire and Casualty Insurance Company
- Republic Lloyds
- Republic Underwriters Insurance Company
- Republic-Vanguard Insurance Company
- Southern County Mutual Insurance Company
- Southern Insurance Company
- Southern Underwriters Insurance Company
- Southern Vanguard Insurance Company
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: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; “A.M. Best Ratings & the Treatment of Debt”; “Assessing Country Risk”; and “Catastrophe Analysis in A.M. Best Ratings.” 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.