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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - DECEMBER 07, 2011 12:00 AM (EST)
A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of A (Excellent) and issuer credit ratings of "a" of Providence Mutual Group (Providence Mutual) and its member company, The Providence Mutual Fire Insurance Company. Both companies are domiciled in Warwick, RI.
The rating actions are due to Providence Mutual's continued unfavorable underwriting performance as a result of frequent storm losses, inadequate pricing and elevated operating expenses. The group reported a significant underwriting loss through the third quarter of 2011 due to winter storms, a tornado in Massachusetts and Hurricane Irene. In addition, the group's surplus maintains a high degree of exposure to fluctuating market values as equity holdings represent a relatively large portion of policyholders' surplus.
Despite the negative outlook, Providence Mutual's ratings reflect its strong risk-adjusted capitalization, adequate operating ratio and the long-term agency relationships in its operating territory. Furthermore, management has initiated several measures to improve operating results, which include rate increases, technology enhancements and product expansion.
Key drivers that could result in a downgrading of the group's ratings include continued deterioration in underwriting performance, the inability to meet its financial projections and erosion in its capital base. Key rating triggers that could result in the removal of the negative outlook include improved underwriting performance while maintaining strong risk-adjusted capitalization.
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: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Catastrophe Analysis in A.M. Best Ratings"; and "Catastrophe Risk Management Incorporated Within the Rating Analysis." 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.