A.M. Best Downgrades Ratings of State Automobile Mutual Insurance Company and Its Operating Subsidiaries
29 April 2015 - 5:56AM
Business Wire
A.M. Best has downgraded the financial strength rating
(FSR) to A- (Excellent) from A (Excellent) and the issuer credit
ratings (ICR) to “a-” from “a” of State Automobile Mutual
Insurance Company (State Auto) and its operating subsidiaries.
Concurrently, A.M. Best has downgraded the ICR to “bbb-” from “bbb”
of State Auto’s intermediate holding company, State Auto
Financial Corporation (STFC) [NASDAQ:STFC]. The outlook for all
ratings has been revised to stable from negative. All the above
companies are headquartered in Columbus, OH. (See below for a
detailed listing of the companies.)
The ratings downgrade is based on State Auto’s unfavorable
five-year underwriting and operating results relative to the
private passenger standard auto and homeowners composite, the
deterioration of 2014 results due to adverse development on the
run-off of its large commercial trucking and commercial restaurant
specialty lines programs, and the potential for 2015 results to be
negatively impacted by additional adverse development on these
programs.
State Auto's positive rating attributes reflect its strong
risk-adjusted capitalization, long-standing regional market
presence, well-established agency relationships, solid brand name
recognition and diversified product offerings. State Auto's capital
position is derived from its sound overall liquidity position and
manageable catastrophe exposure, partially offset by above-average
underwriting and common stock leverage. State Auto also benefits
from its software technology, which further enhances and cultivates
agency relationships, while improving overall operating
efficiencies. The ratings also reflect the financial flexibility
and access to capital through State Auto Financial Corporation,
State Auto’s publicly traded intermediate holding company.
State Auto has implemented numerous strategic initiatives in
recent years to improve underwriting results. These initiatives
include rate increases in a number of states and lines of business,
a reduction of property exposures in catastrophe-exposed areas, the
implementation of increased property wind and hail deductibles, the
implementation of an enhanced homeowner by-peril rating program,
stepped up insurance-to-value efforts, the increased use of
property catastrophe reinsurance and agency management actions.
These strategic initiatives and reduced storm activity resulted in
improved operating earnings and solid surplus growth in 2013,
although underwriting results were tempered by ceded premiums from
its homeowners’ quota share reinsurance contract (expired year-end
2014) and the run-off of business in its specialty lines
segment.
State Auto's negative rating factors include its exposure to
localized tornado/hail storms and hurricane activity. The increased
frequency and severity of storm losses earlier in the previous
five-year period adversely impacted State Auto’s underwriting
profitability, overall earnings and surplus position. However,
these exposures are mitigated through a comprehensive reinsurance
program and available credit facilities, as well as underwriting
initiatives aimed at reducing catastrophe exposures. In 2012, State
Auto also experienced deterioration in its specialty lines segment,
driven by increased losses on its large commercial trucking and
commercial restaurant programs. These policies were placed into
run-off during 2012, with the run-off of premiums completed by
year-end 2013. However, State Auto reported an additional $140
million of adverse development on these claims in 2014, which
resulted in significant underwriting and operating losses and a
moderate decline in surplus at year-end 2014.
State Auto’s management has taken significant actions to prevent
additional adverse loss reserve development on its large commercial
trucking and commercial restaurant programs, which include bringing
management on these claims in-house, performing an internal claims
audit and purchasing adverse development reinsurance on its
commercial restaurant program with $40 million of coverage above
year-end 2014 carried reserves. Lastly, State Auto’s underwriting
results remain pressured by its above-average underwriting expense
ratio.
Negative rating actions could occur if there is a continuation
of operating losses and/or surplus deterioration that took place
over the previous five-year period, potentially driven by storm
losses, adverse loss reserve development or other causes. A
sustained trend of favorable underwriting and operating results
relative to peers and surplus growth would be required for positive
rating movement.
The FSR has been downgraded to A- (Excellent) from A (Excellent)
and the ICRs have been downgraded to “a-” from “a” for State
Automobile Mutual Insurance Company and its following operating
subsidiaries:
- State Auto Property and Casualty
Insurance Company
- Milbank Insurance Company
- State Auto Insurance Company of
Ohio
- Patrons Mutual Insurance Company of
Connecticut
- Meridian Security Insurance
Company
- State Auto Insurance Company of
Wisconsin
- Rockhill Insurance Company
- Plaza Insurance Company
- American Compensation Insurance
Company
- Bloomington Compensation Insurance
Company
The methodology used in determining these ratings is Best’s
Credit Rating Methodology, which provides a comprehensive
explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Best’s
Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best
Ratings
- Insurance Holding Company and Debt
Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process
for Insurance Companies
- The Treatment of Terrorism Risk in the
Rating Evaluation
- Understanding BCAR for
Property/Casualty Insurers
This press release relates to rating(s) 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 visit A.M.
Best’s Ratings & Criteria Center.
A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2015 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
A.M. Best CompanyKenneth Tappen, 908-439-2200, ext.
5248Senior Financial
Analystkenneth.tappen@ambest.comorChristopher
Sharkey, 908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJoseph
Burtone, 908-439-2200, ext. 5125Assistant Vice
Presidentjoseph.burtone@ambest.comorJim Peavy,
908-439-2200, ext. 5644Assistant Vice President, Public
Relationsjames.peavy@ambest.com
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