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FOR IMMEDIATE RELEASE
OLDWICK - SEPTEMBER 17, 2014 09:59 AM (EDT)
A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of B++ (Good) and the issuer credit ratings of "bbb" of the members of Columbia Lloyds Companies: Columbia Lloyds Insurance Company (Houston, TX) and its wholly owned and 100% reinsured subsidiary, MDOW Insurance Company (MDOW) (Houston, TX).
The revised outlook reflects Columbia Lloyds Companies' adequate risk-adjusted capitalization, improved operating performance and stabilization of underwriting results that began in 2013 and continued through the first half of 2014. In addition, other income and net investment income continue to remain positive, which have partially mitigated underwriting losses over the past five years. The recently improved operating performance has been due to fewer severe storm losses along with management corrective actions, which included strengthening of the reinsurance program, significant rate increases (especially in Arkansas and Oklahoma), minimum deductibles, stricter underwriting guidelines and lowering its concentration of risk in Harris County Texas. Lastly, Columbia Lloyds Companies continue to maintain a fairly conservative investment portfolio and adequate balance sheet liquidity.
These positive rating factors are partially offset by Columbia Lloyds Companies' volatile operating results over the past five years, due primarily to underwriting losses that occurred in four of those years. The unfavorable underwriting performance was a result of adverse weather-related events, fire losses and the lingering effects stemming from the large number of Hurricane Ike-related lawsuits. Growth in Arkansas and Oklahoma, particularly in 2012, has adversely impacted the group's results as most of the significant losses during that year occurred in these two states. Furthermore, Columbia Lloyds Companies are significantly dependent upon reinsurance programs, and any material changes in these programs could potentially have a negative impact on the group's overall results. As a property writer with most of its business risks concentrated in Texas, Columbia Lloyds Companies has been subjected to weather-related activity and strong competition. While growth in Arkansas and Oklahoma has expanded Columbia Lloyds Companies' market presence outside of Texas, additional weather-related exposures remain.
Following the revised outlook, positive rating actions are unlikely in the near term. However, a longer pattern of favorable results, including operating profitability coupled with surplus appreciation while risk-adjusted capitalization remains adequate, could lead to positive rating actions. Future negative rating actions and/or an outlook revision may occur if negative operating trends return or if there is a decline in policyholders' surplus and risk-adjusted capitalization.
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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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