A.M. Best Upgrades Issuer Credit Rating of Austin Mutual Insurance Company
A.M. Best Co. has upgraded the issuer credit rating (ICR) to “bb+” from “bb” and affirmed the financial strength rating of B (Fair) of Austin Mutual Insurance Company (AMIC) (Maple Grove, MN). The outlook for both ratings has been revised to positive from negative.
The ICR upgrade reflects the stabilizing trend in AMIC's capitalization and operations, as well as the explicit and implicit support afforded it by its new affiliation with Main Street America Group Mutual Holdings, Inc., which is reflected in AMIC's 's outlook.
Offsetting these positive rating factors is AMIC's poor but stabilizing performance over the past five years, weak but plateaued capitalization, as well as its continued susceptibility to frequent and severe weather events. The company's operating performance deteriorated primarily as a result of its underwriting losses, which were caused by historic weather-related losses in Arizona and Minnesota, as well as the recent adverse reserve development in its private passenger auto liability line of business.
These negative rating factors are partially offset by the company's conservative investment portfolio of fixed-income securities that generate a steady stream of net investment income, as well as the benefits AMIC derives from its long-standing agency relationships in the Midwest.
To address the deterioration in its capitalization AMIC initiated significant agency management actions, rate adjustments and non-renewal of its multi-peril crop insurance line. Furthermore, as a newly affiliated insurance company of Main Street America Group Mutual Holdings, Inc., AMIC's balance sheet has recently benefited from a quota share reinsurance agreement with NGM Insurance Company, a member of Main Street America Group Mutual Holdings, Inc. Looking forward, it is anticipated that AMIC will continue to benefit from this affiliation over the near and mid term.
If AMIC continues to stabilize its underwriting performance and capitalization results, during the deepening of its affiliation with the Main Street America Group Mutual Holdings, Inc., further positive rating actions are possible over the near term. A.M. Best does not expect to downgrade (or place a negative outlook on) the ratings of AMIC in the near to mid term. However, such actions would ensue if the company were to incur renewed material losses in its risk-adjusted capitalization; have the relationship to its new affiliate change in a manner that affects the support of the operations provided by Main Street America Group Mutual Holdings, Inc. or have continued adverse reserve development relative to its peers and the industry's averages.
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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; and “Rating Members of Insurance Groups.” Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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A.M. Best Company, Inc.
Joel Silverthorn, 908-439-2200, ext. 5120
Senior Financial Analyst
Greg Williams, 908-439-2200, ext. 5815
Managing Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations