OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has assigned a financial strength rating (FSR) of B++ (Good) and an issuer credit rating (ICR) of "bbb" to First Mutual Insurance Company (First Mutual) (Smithfield, NC). The outlook assigned to both ratings is stable.
The ratings and outlook reflect First Mutual's adequate risk-adjusted capitalization, moderate underwriting leverage, favorable operating results and long-standing local presence and market knowledge of North Carolina's personal property business segment, specifically homeowners and farmowners coverages. Partially offsetting these positive rating factors are the company's relatively small operating scale, limited product and geographic focus.
First Mutual maintains adequate risk-adjusted capitalization due to its relatively conservative underwriting and investment leverage measures. It has also posted generally positive operating results over the past 10-year period, especially during years with relatively milder weather patterns. Furthermore, management has employed a conservative risk management strategy based on extensive reinsurance protection, modest common stock leverage, limiting business growth in more catastrophe-prone areas and ensuring adequate pricing for its risk exposures.
Partially offsetting these positive ratings factors are the company’s relatively small scale of operations and limited product and geographic diversification. As a predominantly North Carolina-focused insurer, with its attendant catastrophe exposure, First Mutual’s operating results are subject to a greater degree of volatility as compared with larger writers with greater scale and diversified product offerings. However, First Mutual’s history of generally favorable operating performance in the personal property segment while maintaining adequate risk-adjusted capitalization somewhat mitigates the risk of fluctuating operating performance and erosion of balance sheet strength. Furthermore, First Mutual has a degree of flexibility in pricing that mitigates any potential impact of regulatory and legislative changes associated with operating predominantly in a single state.
While A.M. Best believes First Mutual’s ratings and outlook are well positioned at current levels, factors that may lead to positive rating actions include a sustained trend of positive operating and underwriting profitability that consistently outperforms A.M. Best's personal property composite, and an enhancement of capitalization through organic surplus growth. Factors that could lead to negative rating actions include a material deviation from management's projections, a drop in standards of underwriting discipline that deteriorates its underwriting and operating performance to a level below the personal property composite or an erosion of surplus that causes a significant decline in risk-adjusted capitalization.
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
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
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