A.M. Best Revises Outlook to Negative for State Auto Insurance Companies and Its Members
June 18 2010 - 1:26PM
Business Wire
A.M. Best Co. has revised the outlook to negative from
stable and affirmed the financial strength rating (FSR) of A+
(Superior) and issuer credit ratings (ICR) of “aa-” of State
Auto Insurance Companies (State Auto) and its members.
Concurrently, A.M. Best has revised the outlook to negative from
stable and affirmed the ICR of “a-” and debt rating of “a-” on $100
million 6.25% senior unsecured notes, due 2013 issued by State
Auto Financial Corporation (STFC) (NASDAQ: STFC). All the above
named companies are headquartered in Columbus, OH. (See below for a
detailed listing of the companies.)
The negative outlook reflects State Auto’s recent surplus
declines and deterioration in underwriting and operating earnings.
Factors contributing to this result include increased frequency and
severity of catastrophe losses and unrealized capital losses in
recent years.
The affirmation is supported by State Auto’s strong
capitalization, generally favorable operating results and excellent
regional market franchise. These attributes reflect its
long-standing regional market presence, well-established agency
relationships, strong brand name recognition, diversified product
offerings and adherence to sound underwriting fundamentals.
Somewhat offsetting these positive rating factors are the
group’s exposure to localized tornado/hail storms and hurricane
activity. These exposures historically have been mitigated through
comprehensive reinsurance programs and available credit facilities,
as well as underwriting initiatives aimed at reducing catastrophe
exposures. However, the increased frequency of storm losses in
recent years has dampened State Auto’s underwriting profitability
and overall capital position. Furthermore, State Auto has debt
servicing requirements due to the above mentioned debt issuance and
trust preferred securities, which could potentially place a strain
on future earnings. However, disciplined underwriting, consistent
investment income, expanded pricing models, as well as solid
enterprise risk management capabilities have contributed to the
group’s historical results. First quarter 2010 earnings were
favorably impacted by growth in personal lines, a decrease in
catastrophe losses and realized gains from the investment
segment.
The FSR of A+ (Superior) and ICRs of “aa-” have been affirmed
for State Auto Insurance Companies and its following
members:
- State Auto Florida Insurance
Company
- Patrons Mutual Insurance
Company of Connecticut
- Litchfield Mutual Fire
Insurance Company
- Beacon National Insurance
Company
- Beacon Lloyds Insurance
Company
- Farmers Casualty Insurance
Company
- Milbank Insurance
Company
- State Auto Property and
Casualty Insurance Company
- State Auto Insurance Company
of Wisconsin
- State Auto National Insurance
Company
- State Automobile Mutual
Insurance Company
- State Auto Insurance Company
of Ohio
- Meridian Citizens Mutual
Insurance Company
- Meridian Security Insurance
Company
For Best’s Credit Ratings, an overview of the rating process and
rating methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings,
including any additional methodologies and factors that may have
been considered, can be found at
www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service
credit rating organization dedicated to serving the financial and
health care service industries, including insurance companies,
banks, hospitals and health care system providers. For more
information, visit www.ambest.com.
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