JUNE 08, 2016 08:36 AM (EDT)
A.M. Best Affirms Ratings of the Members of the Auto-Owners Insurance Group
Senior Financial Analyst–P/C
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FOR IMMEDIATE RELEASE
OLDWICK - JUNE 08, 2016 08:36 AM (EDT)
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 four of its 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 each rating is stable. All of the companies are domiciled in Lansing, MI. (See below for a detailed listing of the companies.)
The ratings reflect AOIG’s superior capitalization, the re-emerged group trend of solid underwriting income driving operating income, experienced management team, blend of personal and commercial product offerings and long-standing agency relationships. In addition, the group has strong risk management techniques and a well-established market position. These positive rating factors are partially offset by the group’s modest premium growth over the most-recent five-year period, and concentration of business in Michigan and Florida. As these are the group’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.
AOLIC’s ratings are supported by the strength of the company’s capital and surplus, favorable statutory earnings and good overall credit quality within its investment portfolio. The ratings also reflect the company’s strategic importance to Auto Owners, as AOLIC markets life, annuity and disability products to its parent’s property/casualty client base, which has resulted in increased penetration and persistency. Although AOLIC’s earnings have been positive, they have fluctuated in recent years and may be further compromised in the current low interest rate environment as a significant percentage of annuity liabilities carry high minimum guaranteed crediting rates. The company also is exposed to some concentration risk, as a significant proportion of sales and mortgage holdings originate in Michigan. Lastly, despite having strategic importance to the enterprise, AOLIC contributes a relatively modest percentage of premiums and earnings to the enterprise.
While A.M. Best does not expect to downgrade the ratings or revise the outlooks downward of the members of AOIG in the near to intermediate term, 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 the group’s exposure to catastrophic events within its underwriting footprint with the current set of preventative measures that recently have been put in place; or have substantial adverse reserve development relative to its peers and industry averages.
Positive rating action for AOLIC may occur if there is a positive rating action on Auto-Owners. Negative rating action may occur if there is a negative rating action on Auto-Owners, or if there is a revision in the strategic importance of the company to Auto Owners, considerable growth in annuities resulting in a sizable increase in interest sensitive reserves, or a decrease in risk-adjusted capitalization due to operating losses, other than temporary impairments, particularly in its commercial mortgage portfolio, and dividends to its parent.
The FSR of A++ (Superior) and the ICRs of “aa+” have been affirmed, each with a stable outlook, for Auto-Owners Insurance Company and its wholly owned subsidiaries:
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 see A.M. Best’s Recent Rating Activity web page.
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