OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit rating to “a-” from “a” of The Providence Mutual Fire Insurance Company (Providence Mutual) (Providence, RI). The outlook for both ratings has been revised to stable from negative.
The rating downgrades reflect the deterioration in Providence Mutual’s underwriting and operating results over the last several years primarily as a result of elevated losses originating from frequent weather-related events in its operating territory. This trend has caused the company’s earnings to become more dependent on investment gains to offset these underwriting losses, which has proven to be difficult during a period of historically low interest rates. In an effort to improve financial results, management has implemented numerous underwriting, pricing and coastal mitigation strategies designed to positively influence underwriting performance and restore policyholder surplus growth.
Providence Mutual continues to maintain a strong risk-adjusted capital position due to its modest underwriting leverage and the mitigation of its catastrophe weather exposure from a severity perspective through the use of a comprehensive reinsurance program. Providence Mutual’s established presence in New England and long-term agency relationships also enables it to be one of the leading writers of personal lines insurance in that region.
A.M. Best believes that Providence Mutual is well positioned at its current rating level in the near to medium term. Factors that may lead to negative rating actions include a material deterioration in the company’s risk-adjusted capital as well as a prolonged period of operating losses.
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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best Ratings”; “Understanding BCAR for Property/Casualty Insurers”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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