Ratings Recap: Mercer Group, CAMICO, First Jersey

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of the New Jersey-based Mercer Insurance Group. The ratings also apply to the following four inter-company reinsurance pool members: Mercer Insurance Company (Lock Haven, PA), Mercer Insurance Company of New Jersey, Inc. (Pennington, NJ), Franklin Insurance Company (Lock Haven, PA) and Financial Pacific Insurance Company (FPIC) (Rocklin, CA). Best also revised the outlook to stable from negative and affirmed the ICR of “bbb” of Mercer Insurance Group, Inc. “The revised outlook reflects Mercer’s ” improved level of capitalization in 2009 as surplus grew due to profitable after-tax operating results, a capital contribution from its parent and a decrease in the group’s non-admitted deferred tax assets,” Best explained. “In addition, the equity in the group’s fixed income portfolio significantly improved during the year, further bolstering economic capital. Best said that the ratings reflect Mercer’s “favorable capitalization, solid operating performance and conservative management philosophy. The group continues to record favorable underwriting results, which have been an important driver of strong pre-tax returns on both revenue and surplus that either meet or exceed industry peers.” As offsetting factors, best cited Mercer’s “elevated expense structure and the risks associated with possible further adverse development on its construction defect liabilities. These concerns are partially mitigated by the strong expense control initiatives implemented during 2009 that resulted in a reduction in the expense ratio, despite a modest decline in net premium volume, historically strong reserve positions taken on more recent accident years and the fact that its construction defect claims are reserved above the actuarial mid-point suggested by its outside actuaries.” Best said the rating outlook reflects its expectations that “strong earnings will continue to add to Mercer’s capital base, further protecting the capital position against potential volatility in both the capital markets and loss reserve position.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Calif.-based CAMICO Mutual Insurance Company. The ratings reflect CAMICO’s “appropriate risk-adjusted capital, strong market presence and historically high policyholder retention,” Best said. The rating agency also noted that it recognizes CAMICO’s “long-term commitment to supporting its members, providing policyholders with dedicated risk management and claims services and the benefits of new programs to reduce retained risks. However, “CAMICO’s recent unfavorable operational performance, including increases in claim frequency and high profile exposures,” should be considered as offsetting factors. In addition, Best cited “declines in investment results and increases in reserve allocations in the most recent years,” which have led to deteriorating results. Best explained that the negative outlook recognizes that CAMICO’s “current position is susceptible to short-term adverse changes in its operating environment. These include adverse development in claim severity and frequency, lower than optimal investment returns and commission and fee based income falling short of projections. Management has taken steps to improve profitability and protect capital; however, the ratings are dependent on the company’s ability to generate positive operating results, favorable reserve development and growth in policyholder surplus.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of First Jersey Casualty Insurance Company. The negative outlook reflects “FJCIC’s significant underwriting and operating losses in 2009,” said Best. It explained that the “poor performance was caused by adverse loss reserve development, primarily on the 2003 to 2007 accident years, for which FJCIC maintained excess of loss reinsurance. Best added that it is concerned that a “continuation of recent operating losses could cause a decline in FJCIC’s risk-adjusted capitalization to a level of capitalization not commensurate with its current ratings. The ratings also recognize FJCIC’s adequate capitalization, which benefited from a $1 million equity infusion in 2009, and the long-standing relationship FJCIC has with its affiliated agency, Restaurant Coverage Associates, Inc.”