SEPTEMBER 11, 2012 12:00 AM (EDT)
A.M. Best Upgrades Issuer Credit Rating of Sterling Insurance Company
Senior Financial Analyst
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Assistant Vice President
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Assistant Vice President, Public Relations
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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - SEPTEMBER 11, 2012 12:00 AM (EDT)
A.M. Best Co. has upgraded the issuer credit rating to a+ from a and affirmed the financial strength rating of A (Excellent) of Sterling Insurance Company (Sterling) (Cobleskill, NY). The outlook for both ratings is stable.
The rating actions reflect Sterlings solid risk-adjusted capitalization and continued favorable operating performance as well as its long-standing local market presence. Sterlings solid capital position has been derived from a double-digit compound average annual growth in surplus over the latest five-year period, driven by net underwriting gains in each of the last five years, supplemented by generally steady net investment and other income. The profitable underwriting results have enabled the company to record consecutive years of double-digit pre-tax returns on revenue. Contributing to Sterlings favorable operating performance profitability has been managements strict adherence to its underwriting guidelines and pricing discipline.
Partially offsetting these positive rating factors is Sterlings geographic risk concentration in New York, which exposes its operating performance to weather-related events, as well as changes in regulatory and competitive market conditions. However, the companys catastrophe reinsurance coverage reduces the impact on surplus of a storm with a 100-year return period based on a modeled probable maximum loss to a manageable level of surplus. Also, the companys underwriting expense ratio is above the personal property composite average, primarily driven by higher commission rates.
There could be pressure on Sterlings ratings if its favorable operating performance is reversed or if its risk-adjusted capitalization were to weaken.
The methodology used in determining these ratings is Bests Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bests 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; Equity Credit for Hybrid Securities; and Catastrophe Analysis in A.M. Best Ratings. Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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