OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of State Automobile Mutual Insurance Company (State Auto) and its operating subsidiaries. Concurrently, A.M. Best has affirmed the ICR of “bbb” and the debt rating of “bbb” on $100 million of 6.25% senior unsecured notes due November 2013, issued by State Auto’s intermediate holding company, State Auto Financial Corporation (STFC) [NASDAQ: STFC]. The outlook for all ratings has been revised to negative from stable. The above named companies are headquartered in Columbus, OH. (See below for a detailed listing of the companies.)
The revised outlook to negative from stable is based on State Auto’s unfavorable underwriting results and operating earnings in recent years, as well as a moderate decline in policyholders’ surplus. This was driven by an increased frequency and severity of property catastrophe losses, and most recently, by deterioration in its large commercial trucking and commercial restaurant programs in its specialty lines segment. These programs were placed in run-off in 2012, and had an adverse impact on year-end 2012 results. Going forward, management anticipates that there should be little to no adverse development for the remainder of the run-off.
The ratings reflect State Auto’s strong risk-adjusted capitalization, long-standing regional market presence, well-established agency relationships, solid brand name recognition and diversified product offerings. State Auto also benefits from its software technology, which further enhances and cultivates agency relationships while improving overall operating efficiencies. The ratings further reflect the financial flexibility and access to capital through STFC.
State Auto’s negative rating factors include its 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 and severity of storm losses in recent years has adversely impacted State Auto’s underwriting profitability, overall earnings and policyholders’ surplus. In addition, the group’s underwriting results remain pressured by its above-average underwriting expense ratio, primarily related to agents’ commissions.
State Auto has recently implemented numerous strategic initiatives 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 and quota share reinsurance and agency management actions. Furthermore, the run-off of the large commercial trucking and commercial restaurant programs in its specialty lines segment, which was started in 2012, should be completed by year-end 2013.
Lastly, A.M. Best has withdrawn the FSR of A (Excellent) and the ICR of “a” of Litchfield Mutual Fire Insurance Company (Thomaston, CT) as it was merged with Patrons Mutual Insurance Company of Connecticut, effective March 31, 2013. The merger is part of State Auto management’s ongoing efforts to streamline their organizational structure.
Negative rating actions could occur if State Auto has a continuation of operating losses, surplus deterioration and/or a material decline in risk-adjusted capitalization, driven by weather-related catastrophe losses or other causes.
The FSR of A (Excellent) and the ICRs of “a” have been affirmed 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
- Meridian Citizens Mutual Insurance Company
- 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.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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