OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit rating (ICR) of “aa-” for Hastings Mutual Insurance Company (Hastings Mutual) (headquartered in Hastings, MI).
The negative outlook is based on the company's geographic concentration and corresponding exposure to severe weather-related losses, which has driven deterioration in underwriting and operating results in recent years.
The rating affirmation reflects Hastings Mutual's superior capitalization, modest five-year operating performance and well-established local market presence in Michigan, where it has operated for over 125 years. The company's superior capitalization reflects its moderate underwriting leverage, conservative investment risk profile and favorable loss reserve development. The five-year operating performance was driven by solid investment income and other income, partially offset by underwriting losses. These positive rating factors are derived from the company's long-standing agency relationships and management's adherence to sound operating fundamentals. Hastings Mutual has implemented a comprehensive review of its operations that includes rate adjustments where indicated, more sophisticated rating plans, insurance-to-value initiatives, agency training and performance reviews, investments in underwriting and claims systems technology, as well as the utilization of outside consultants to review medical bills for bodily injury claims.
Partially offsetting these positive rating factors is Hastings Mutual's deterioration in operating results in recent years, driven by an increased frequency and severity of storm losses that adversely impacted its homeowners and auto physical damage lines of business. In addition, private passenger auto loss experience deteriorated due to increased bodily injury and personal injury protection loss severities, driven by medical inflation. In 2011, the company reported improved underwriting results, driven by lower large non-storm losses, increased favorable loss reserve development on the personal auto liability and workers' compensation lines of business and the earning of rate increases in numerous states and lines of business. However, most recently, underwriting and operating results have once again deteriorated due to increased net incurred storm losses. Underwriting results were significantly impacted by the second-quarter 2012 Derecho Storm in Ohio and Indiana, which resulted in net incurred losses of $8.0 million plus a $2.0 million reinstatement.
The company maintains a strong risk-adjusted capital position. However, negative rating actions could result from a continuation of the unfavorable underwriting results and operating earnings reported in 2009, 2010 and 2012, which were driven by significant storm 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: “Catastrophe Analysis in A.M. Best Ratings”; “Risk Management and the Rating Process for Insurance Companies”; “The Treatment of Terrorism Risk in the Rating Evaluation”; and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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