OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has downgraded the Financial Strength Rating (FSR) to A (Excellent) from A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a+” from “aa-” for the members of Mercury Casualty Group (Mercury) (headquartered in Los Angeles, CA). Concurrently, AM Best has downgraded the Long-Term ICR to “bbb+” from “a-” of the organization’s publicly traded ultimate parent, Mercury General Corporation (MGC) (Los Angeles, CA) [NYSE: MCY]. In addition, AM Best has downgraded the Long-Term Issue Credit Rating to “bbb+” from “a-” on MGC’s $375 million 4.4% senior unsecured notes due 2027. The outlook for all of these Credit Ratings (ratings) has been revised to stable from negative. Additionally, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of the insurance entities within the American Mercury Insurance Group (AMI) (headquartered in Oklahoma City, OK). The outlook of these ratings is stable. (See below for a detailed listing of companies.)
The ratings of Mercury reflect the group’s balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The downgrade reflects the assessment of Mercury’s business profile in the neutral category. While the organization benefits from its significant market share in private passenger auto and homeowners markets in its domicile of California with strong independent agency relationships, its continued heavy concentration in California also exposes it to substantial market volatility, catastrophe losses, legislative changes and judicial decisions. This geographic concentration risk factor, which has gradually become more pronounced over the past several years, was underscored by its record fire losses in 2017 and 2018 and adverse auto bodily injury loss cost trends in California.
The very strong balance sheet assessment reflects Mercury’s solid risk-adjusted capitalization, strong liquidity measures, generally conservative investment portfolio and the financial flexibility afforded it via its publicly traded parent, MGC. These positive aspects are offset partially by recent adverse prior year reserve development and net leverage ratios that exceed the composite. While Mercury’s current reinsurance program has thus far demonstrated sufficient capacity to absorb the fire-related events, Mercury remains somewhat exposed to additional catastrophe events through the end of June 2019, given that the first layer of reinstated limit on its reinsurance treaty has been exhausted.
The strong operating performance reflects the long-term stability in Mercury’s underwriting and operating results, solid expense management and total returns that compare favorably with the composite. ERM is considered appropriate for an organization of Mercury’s profile and market position.
The ratings of AMI reflect the group’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM.
AMI’s rating foundation is its consistent balance sheet capacity as measured by risk-adjusted capital. This is countered by operating results that are supportive of overall favorable performance, though are adversely impacted by variability in underwriting performance from cycles in loss frequency and severity. These cycles are caused in part by a concentration in line of business and geographic focus within Texas and Oklahoma and the resulting exposure to weather events. As part of the Mercury organization, AMI receives the benefits of shared ERM, management experience, and capital capacity provided as part of the enterprise’s reinsurance programs.
The FSR has been downgraded to A (Excellent) from A+ (Superior) and the Long-Term ICRs downgraded to “a+” from “aa-” with all outlooks revised to stable from negative for the following members of Mercury Casualty Group:
- Mercury Casualty Company
- Mercury Insurance Company
- California Automobile Insurance Company
- Mercury Indemnity Company of Georgia
- Mercury Insurance Company of Georgia
- Mercury Insurance Company of Illinois
- Mercury National Insurance Company
- Mercury Insurance Company of Florida
- Mercury Indemnity Company of America
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been affirmed with stable outlooks for the following members of American Mercury Insurance Group:
- American Mercury Insurance Company
- American Mercury Lloyds Insurance Company
- Mercury County Mutual Insurance Company
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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