Ratings Recap: Georgia Farm, Okla. Farm, State Auto, Premier, Medmarc

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit ratings to “bbb+” from “a-” of Georgia Farm Bureau Group and its members, Georgia Farm Bureau Mutual Insurance Company and Georgia Farm Bureau Casualty Insurance Company. Best has also revised the outlook for all of the ratings to stable from negative. “The rating downgrades reflect Georgia Farm Bureau Group’s continuing unfavorable underwriting performance, which has negatively impacted the group’s capitalization,” Best explained. “The group posted a nearly $80 million underwriting loss in 2008, which was the primary driver behind a drop in surplus of approximately $70 million or 19 percent. Though the group had bolstered its capital position at year-end 2007 through the issuance of $45 million in surplus notes, this capital cushion has been depleted due to the poor operating results of 2008 and first quarter 2009.” In addition best noted that the “personal auto liability and homeowners’ segment, which is part of the group’s core book of business, continues to significantly underperform relative to its industry peers. Furthermore, as a single state property writer, Georgia Farm Bureau Group’s overall earnings are exposed to frequent and severe weather-related events. The outlook reflects the group’s present capital position, which adequately supports the current ratings. The group has initiated efforts to re-underwrite its core book of business to achieve future underwriting profitability.”

A.M. Best Co. has downgraded the financial strength rating to’ B++’ (Good) from ‘A-‘ (Excellent) and issuer credit ratings to “bbb+” from “a-” of Oklahoma Farm Bureau Group and its members, Oklahoma Farm Bureau Mutual Insurance Company and AgSecurity Insurance Company. The outlook for all of the ratings is stable. “The rating downgrades reflect Oklahoma Farm Bureau Group’s poor underwriting performance in 2008 and first quarter 2009, which has negatively impacted the group’s risk-adjusted capitalization,” said Best. “The group posted a nearly $65 million net underwriting loss in 2008 due primarily to frequent and severe weather-related events. Although this significant impact to policyholders’ surplus was partially offset by the issuance of a $15.8 million surplus note at year-end 2008, the decline in surplus of nearly $40 million in 2008 or approximately 27 percent has resulted in significantly reduced risk-adjusted capitalization.” Best also indicated that the “personal auto and homeowners/farmowners’ segment, which represents the group’s core book of business, has underperformed relative to its industry peers. Furthermore, as a single state property writer, Oklahoma Farm Bureau Group’s overall earnings remain exposed to frequent and severe weather-related events.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of State Auto Insurance Companies and its members. Best also affirmed the ICR of “a-” and debt rating of “a-” on $100 million 6.25 percent senior unsecured notes, due 2013 issued by State Auto Financial Corporation (STFC) All the above named companies are headquartered in Columbus, Ohio. The outlook for all ratings is stable. “The ratings reflect State Auto’s strong capitalization, generally favorable operating performance and excellent regional market franchise,” said Best. “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.” However Best also noted that “somewhat offsetting these positive rating factors is the group’s exposure to localized tornado/hail storms, hurricane activity in the Southeast and an earthquake stemming from the New Madrid fault in the Midwest. These exposures have historically 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 quarters has dampened State Auto’s underwriting profitability and overall capital position.” In addition Best explained that State Auto’s capital position “remains sensitive to changes in the market value of STFC and unaffiliated equity holdings, as evidenced by the large unrealized capital losses reported in recent years. Furthermore, State Auto has debt servicing requirements due to the above mentioned debt issuance and trust preferred securities, which could put a strain on future earnings. However, State Auto has continued to emphasize disciplined underwriting, pricing and claims processes. As a result of this strategy, State Auto has reported favorable operating results in most of the past five years.”

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and issuer credit rating (ICR) to “a-” from “bbb+” of Tennessee-based Premier Group Insurance Company, and has revised its outlook on the ratings to stable from positive. Best said the “ratings reflect Premier’s excellent capitalization and liquidity, low leverage and conservative investment portfolio. The ratings also recognize Premier’s solid operating performance driven by strong underwriting results, which compare favorably to the workers’ compensation industry composite averages.” In addition Best said the “ratings also consider the financial benefits and enhanced business profile derived from Premier’s ultimate parent company, National HealthCare Corporation Premier has been able to leverage its monoline focus and its role within NHC to achieve consistently profitable underwriting results. Partially offsetting these positive factors are the company’s relatively high retention per claim and limited scale and business diversification. While Premier has a stable source of business from NHC and is able to write business from third parties, its business volumes, growth opportunities and dividend policy are largely dependent on NHC’s strategies.”

A.M. Best Co. has downgraded the financial strength rating to ‘A-‘ (Excellent) from ‘A’ (Excellent) and issuer credit ratings to “a-” from “a” of Medmarc Insurance Group and its members, Medmarc Mutual Insurance Company, Medmarc Casualty Insurance Company (both of Montpelier, VT) and Noetic Specialty Insurance Company (Chicago, IL). The outlook for all ratings is stable. Best explained that the “rating actions reflect Medmarc’s weak underwriting results in 2008 as well as continued pressure on underwriting results projected for 2009, mixed reserve development over a 10-year period primarily from discontinued lines and exposure to multiple losses from certain products within its market niche. The group operates under competitive market conditions resulting in some rate deterioration over the past three years, which has affected underwriting results. Positive rating factors are Medmarc’s excellent risk-adjusted capitalization, strong operating performance during the 2004-2007 period, solid market presence providing products liability coverage within the medical technology and life science products markets and its experienced management team.” In addition Best noted that “underwriting results fell in 2008 as separate loss trends affected multiple policyholders on the group’s core medical technology and life sciences book of business. Furthermore, its lawyers’ liability line experienced some additional loss experience during 2008, including some development on prior accident year losses. Medmarc’s core insurance operations provide products liability and completed operations liability coverage for manufacturers and distributors of medical technology and life sciences products. The group’s lawyers’ liability coverage focuses on small law firms in 26 states.”