Market Overview

A.M. Best Revises Issuer Credit Rating Outlook to Positive for Forestry Mutual Insurance Company


A.M. Best has revised the outlook to positive from stable for the
Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the
Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of
"bbb" of Forestry Mutual Insurance Company (Raleigh, NC). The
outlook of the FSR remains stable.

These Credit Ratings (ratings) reflect Forestry Mutual Insurance
Company's balance sheet strength, which A.M. Best categorizes as strong,
as well as its adequate operating performance, limited business profile
and appropriate enterprise risk management (ERM).

The Long-Term ICR outlook revision to positive is based on A.M. Best's
expectation that FMIC's operating performance may continue to drive
organic surplus growth and further improve risk-adjusted capitalization,
along with stabilizing reserve development trends.

The rating affirmations further reflect FMIC's strengthening
risk-adjusted capitalization, as measured by Best's Capital Adequacy
Ratio (BCAR), but A.M. Best recognizes the potential for variability
given FMIC's monoline product orientation in the workers' compensation
market, which is characterized by potentially high severity claims and
could be subject to changes in loss costs, utilization and medical
inflation. The company's retention is manageable relative to its
surplus. Surplus has grown organically by 79% over the past five years,
ending 2017 at $24.1 million, the highest level in the company's history
after five consecutive years of operating profits.

In addition, A.M. Best considers the company's operating performance to
be adequate, benefiting from geographic diversification by entering
markets in neighboring states, as well as the initiatives taken to
restructure its reinsurance program to reduce net loss ratio volatility.
The company's calendar year results reflect more favorable reserve
development annually, on average, than those of the industry, even with
lower accident year original loss picks. These favorable development
results generally reflect ongoing analysis of recent loss development
trends. Original estimates are increased or decreased as additional
information becomes known regarding individual claims, and the company
seeks to reserve to the expected ultimate loss level within two years.

The business profile is limited as a mono-line workers compensation
writer for the logging and forestry industries, which exposes it to
risks associated with the timber industry such as a slowdown in
construction industry or changes in the demand for wood products.
However, FMIC has a defensible niche as a recognized leader in this
industry. Forestry Mutual generates approximately 60% of its business in
North Carolina and Virginia but its geographic diversification has
improved in recent years with the company's expansion into Georgia in
2014. ERM is appropriate for the size and scope of the company's
operations. Its focus on safety and loss prevention has been recognized
by the Occupational Safety and Health Administration and the tight
control structure ensures management is aware of key risks and
developing trends.

This press release relates to Credit Ratings 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
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Best's Credit Ratings
. For information on the proper media
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