AM Best Information Services

JANUARY 16, 2015 08:54 AM (EST)

A.M. Best Affirms Ratings of Auto-Owners Insurance Company and Its Subsidiaries

Joel Silverthorn
Senior Financial Analyst–P/C
(908) 439-2200, ext. 5120

Greg Williams
Assistant Vice President–P/C
(908) 439-2200, ext. 5815

Frank Walko
Financial Analyst–L/H
(908) 439-2200, ext. 5072

Raj Shah
Assistant Vice President–L/H
(908) 439-2200, ext. 5409

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - JANUARY 16, 2015 08:54 AM (EST)
A.M. Best has affirmed the financial strength rating (FSR) of A++ (Superior) and the issuer credit ratings (ICR) of "aa+" of Auto-Owners Insurance Company (Auto-Owners) and its four wholly owned property/casualty subsidiaries. Together these companies comprise the Auto-Owners Insurance Group (AOIG). Additionally, A.M. Best has affirmed the FSR of A+ (Superior) and the ICR of "aa-" of Auto-Owners Life Insurance Company (AOLIC), a wholly owned subsidiary of Auto-Owners. The outlook for all ratings is stable. All companies named above are domiciled in Lansing, MI. (See below for a detailed listing of the companies.)

The ratings reflect AOIG's superior capitalization, the re-emergence of solid operating income primarily through net investment income and then supplemented more recently by underwriting profits, an experienced management team, a blend of personal and commercial product offerings and long-standing agency relationships. In addition, AOIG has strong risk management techniques and a well-established market position.

These positive factors are partially offset by the group's modest premium growth over the recent five-year period, and concentration of business in Michigan and Florida. As these are AOIG's two leading states, this geographic concentration exposes it to challenging economic, legislative and regulatory environments and weather-related catastrophic events. Additionally, as a member of the Michigan Catastrophic Claims Association (MCCA), AOIG is exposed to rising retentions and credit risk for personal injury protection medical losses.

The ratings for AOLIC reflects the company's strong quality of surplus, with no debt at the life company, little dependency on reinsurance, overall good credit quality of invested assets and organic growth of capital through operating earnings. In addition, AOLIC is considered to be a strategically important component of Auto-Owners Group, cross-selling life, annuity, and accident & health products to its property/casualty client base, where management aims to gain greater penetration and persistency. However, AOLIC remains challenged to manage its spread compression risk, as nearly all of its annuity liabilities have guaranteed crediting rates of at least 3%. In addition, AOLIC is exposed to geographic concentration risk as a significant percentage of premiums and mortgages originate from the state of Michigan. There is further concentration as the company holds a significant amount of structured securities. Lastly, while considered strategically important to the group, the company's contribution in terms of earnings and premium is modest.

While A.M. Best does not expect to downgrade (or place a negative outlook on) the ratings of Auto- Owners or its subsidiaries in the near to midterm, such actions would ensue if the group were to incur material losses in its capitalization; have a severe reduction in the profitability of its core book of business; be unable to contain its exposure to catastrophic events within its underwriting footprint with the current set of preventative measures that have been recently put in place; or have substantial adverse reserve development relative to its peers, as well as industry averages.

Positive movement in the ratings for AOLIC may occur if A.M. Best believes that there is an increase in its strategic importance to AOIG. Factors that could lead to a negative rating action include statutory net losses, revision in A.M. Best's opinion of the strategic value to the group, heightened interest rate sensitivity in its liabilities, or significant decline in absolute and risk-adjusted capitalization.

The FSR of A++ (Superior) and the ICRs of "aa+" have been affirmed for Auto-Owners Insurance Company and its wholly owned subsidiaries:

  • Home-Owners Insurance Company

  • Owners Insurance Company

  • Property-Owners Insurance Company

  • Southern-Owners 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. Best's Credit Rating Methodology can be found at

Key insurance criteria reports utilized:

  • Catastrophe Analysis in A.M. Best Ratings

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for Property/Casualty Insurers

  • Understanding Universal BCAR

  • A.M. Best's Liquidity Model for U.S. Life Insurers

  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

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