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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - NOVEMBER 22, 2011 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+" of Grinnell Mutual Group (Grinnell) (Grinnell, IA) and its operating members, Grinnell Mutual Reinsurance Company and Grinnell Select Insurance Company. The outlook for the ICR has been revised to negative from stable, while the outlook for the FSR is stable.
The revised ICR outlook is based on Grinnell's deterioration in underwriting results and operating earnings in recent years. The deterioration in underwriting results has been driven by unfavorable loss experience on Grinnell's assumed property reinsurance line of business and an above average underwriting expense ratio.
Grinnell's FSR reflects its strong risk-adjusted capitalization, moderate five-year operating performance, focused operating strategy and well-established market position as a leading reinsurer of farm mutuals in the Midwestern United States. Grinnell provides reinsurance and direct coverages to regional farm mutual companies that are statutorily limited to writing property business only. The relationship with the farm mutuals creates a strategic advantage for Grinnell, allowing it to penetrate the small towns and rural areas of its operating territory. This is accomplished through the independent agencies whose farm mutual business Grinnell reinsures. Management is focused on continuous improvement of underwriting results and operating efficiency. Recent initiatives include rate increases in virtually all lines of business, tightened underwriting controls, intensive training sessions aimed at improving underwriting and claims processes and streamlined operations by reorganizing its previously regionalized marketing structure to one which is more function oriented.
Partially offsetting these positive rating factors is Grinnell's concentration of risk within the Midwest and corresponding exposure to severe weather-related losses. Grinnell's exposure to adverse weather patterns in the Midwest has been illustrated in recent years as it experienced severe weather-related losses, primarily in its assumed property reinsurance business, which resulted in a combined ratio above breakeven. This deterioration in underwriting results has tempered operating earnings and surplus growth in recent years. The unfavorable loss experience for the assumed property reinsurance business also was driven by inadequate rates for this line of business. In addition, the volatility inherent in Grinnell's book of business also has led to a greater dependence upon reinsurance to mitigate its catastrophe exposure. Furthermore, Grinnell maintains an above average underwriting expense ratio, which is driven by an elevated commission expense due to its independent agency structure. Grinnell remains challenged to maintain its high operational standards, given the significant exposures inherent in writing weather-sensitive insurance products in the rural Midwest.
With Grinnell's negative ICR outlook, a downgrading of the ICR could result from a continuation of unfavorable operating performance and/or surplus deterioration.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "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"; and "Understanding BCAR for Property/Casualty Insurers". Methodologies 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.