Ratings Recap: GeoVera, Catholic Knights, Auto Owners, Church Mutual

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Calif.-based GeoVera Insurance Group and its P/C members. “The ratings and outlook reflect GeoVera’s excellent capitalization, moderate underwriting leverage and management’s experience in its market segment,” Best explained. “Profitable underwriting performance, combined with solid investment income and underwriting fee income, has improved the group’s capital position.” Best also noted that “GeoVera maintains a moderate underwriting leverage position due to prudent risk management efforts, which have further strengthened risk-adjusted capital.” The revised outlook also reflects Best’s “expectation that the group will continue to produce profitable underwriting results, while maintaining excellent risk-adjusted capitalization,” said the bulletin. However, best noted that “GeoVera’s geographic concentration of business in catastrophe-prone areas, high gross catastrophe leverage and significant reinsurance dependence” should be considered as offsetting factors. Best noted that, “although GeoVera concentrates all underwriting on providing coverage in catastrophe-prone areas, it combines an established catastrophe-modeled and web-based quoting and binding system to ensure proper pricing with an extensive catastrophe reinsurance program to mitigate its exposure. However, GeoVera maintains high gross catastrophe leverage and is significantly dependent on reinsurance to reduce this exposure to a manageable level on a net basis. Furthermore, GeoVera has paid stockholder dividends to its parent in recent years, which resulted in a decline in surplus in 2008 and tempered surplus growth in 2007.”

A.M. Best Co. has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and issuer credit rating to “bbb-” from “bbb” of Wisc.-based Catholic Knights (the Society), both with stable outlooks. “These rating actions reflect the Society’s significant decline in its unassigned funds in the last year due to investment losses, both realized and unrealized,” Best explained. “As a result, the Society’s risk-adjusted capitalization has weakened relative to its investment and insurance risks as measured by Best’s Capital Adequacy Ratio (BCAR).” Best also noted that the Society’s “large unrealized losses underlying its fixed income portfolio may further pressure the Society’s unassigned funds going forward. While the Society has already significantly reduced its exposure to equities, it is pursuing a capital improvement plan that includes the addition of alternative sources of capital from external as well as internal resources.” However, best also indicated that the “Catholic Knights has a consistently positive statutory operating record, long-standing fraternal presence in the Roman Catholic community and has made extensive efforts to improve its life insurance business profile. The Society made a commitment to expand its membership base through a number of initiatives that center on putting Catholic values and financial opportunities into action. Over the past five years, the Society has generated positive net operating gains across its core lines of business, while increasing its unassigned funds, prior to investment losses in 2008 and first quarter of 2009. Furthermore, Catholic Knights has a successful record of mergers with other Catholic fraternal organizations; thus, gaining membership, expanding financial capacity and presenting another avenue for membership growth.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A++’ (Superior) and issuer credit ratings (ICR) of “aa+” of Michigan’s Auto-Owners Insurance Group (AOIG) and its members. AOIG is comprised of five P/C companies led by Auto-Owners Insurance Company and four wholly owned subsidiaries. Best also affirmed the FSR of ‘A+’ (Superior) and ICR of “aa-” of Auto-Owners Life Insurance Company (AOLIC), a wholly owned subsidiary of Auto-Owners Insurance Company. The outlook for all ratings is stable. “The ratings reflect AOIG’s superior capitalization, trend of solid operating earnings, diversified product offerings and well-established agency relationships,” Best noted. “These positive factors are partially offset by the group’s declining underwriting income and concentration of business in Michigan, its leading state for premium production, which exposes it to challenging economic, legislative and regulatory environments. Additionally, a significant portion of AOIG’s business is exposed to weather-related catastrophic losses and adverse legislative and regulatory actions in Florida, its second-largest state for premium production.” In addition Best pointed out that “AOIG developed a strong capital position as a result of being managed under a conservative operating philosophy, maintaining modest underwriting leverage measures and holding a highly rated fixed income investment portfolio. The group possesses a competitive advantage through its superior claims service and agency partnering approach, which strengthened agency loyalty. During the past five years, the group’s operating results benefited from increased pricing, greater underwriting scrutiny and increased policy retention and net investment income. AOIG’s total income during the past five-year period was impacted by declining underwriting results and capital losses primarily in its common stock portfolio. Underwriting income was impacted by weather-related losses emanating from Florida hurricane losses in 2004, Midwestern tornado/ hail and winter storms in 2008, rising loss costs in its core personal automobile book and increased loss frequency and severity trends in homeowners. Additionally, the group’s profitability was challenged by underwriting and market risks associated with its business in Florida and Michigan.” Best explained that “while the ratings acknowledge AOIG’s strong market presence as one of the 20 largest property/casualty insurance organizations in the United States with more than $4.2 billion in net written premium at year-end 2008, premium growth has declined over the past three years. Additionally, the ratings are based on the consolidated financial results of the subsidiaries. AOLIC’s ratings recognize its integral role as the life/health and annuity company of AOIG, its superior level of risk-adjusted capitalization and the benefits it receives from AOIG’s strong capital base. AOLIC maintains a favorable trend of statutory operating results and new business production even as the company’s overall contribution to the group remains modest relative to the overall enterprise.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Wisconsin’s Church Mutual Insurance Company. Best said the “revised outlook reflects Church Mutual’s poor underwriting and operating performance in 2008 and first quarter 2009, which led to a drop in risk-adjusted capitalization and declining return measures, as well as its continued exposure to losses from weather-related events. In 2008, Church Mutual posted an underwriting loss of $26.9 million, driven primarily by losses associated with the high frequency of weather-related events throughout the year and the severity of Hurricane Ike. In addition, the company’s operating results were negatively impacted by losses in its investment portfolio, attributable to the ongoing volatility in the financial markets. Given the size of investment losses, coupled with the magnitude of catastrophe losses in 2008 and through first quarter 2009, A.M. Best has concerns with management’s current implementation of its enterprise risk management platform.” Best also explained that the revised outlook “considers the challenges Church Mutual faces to improve operating results and capitalization, given the continued exposure to weather-related losses, the competitive environment in the specialty niche market and the ongoing volatility in the financial markets. The ratings reflect Church Mutual’s prominent position in the religious institutional marketplace and management’s extensive knowledge of this specialty niche market. The company also benefits from its low-cost, countrywide direct distribution system and geographic diversification throughout the United States. The ratings further acknowledge Church Mutual’s historically conservative loss reserving standards that have allowed for substantial favorable loss reserve development in prior accident years.”