OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the financial strength rating to B (Fair) from B+ (Good) and the issuer credit ratings to “bb+” from “bbb-” of Buckeye State Mutual Insurance Company (Buckeye) (Piqua, OH) and its insurance affiliate: Home and Farm Insurance Company (Fort Wayne, IN). The outlook for all ratings has been revised to stable from negative.
The rating downgrades reflect Buckeye’s significant operating losses in recent years, which led to sizeable declines in its policyholders’ surplus, stemming from catastrophe weather-related losses, along with unfavorable loss experience in the automobile line of business and competitive market pressures in its operating territory. The frequency and severity of gross catastrophe losses were elevated over the past five years.
Buckeye’s underwriting losses over the previous five-year period were driven primarily by widespread storm losses in the Midwest. The losses were partially offset by net investment income, albeit at a declining level. In addition to recently reducing its property exposures, Buckeye has undertaken a new rating platform for automobile, bi-peril rating of property risks, continued rate increases across all major lines and agency management actions.
Buckeye’s business concentration in the Midwest continues to expose its earnings to catastrophic wind, hail and tornado losses. Management partially mitigates this exposure through comprehensive reinsurance, and prudent risk management and geographic diversification strategies. As a result, the net probable maximum loss (PML) from a 100-year tornado/hail event, as depicted in a PML analysis, has been reduced to a reasonable level of surplus.
Factors that may lead to further negative rating actions include sudden, continued deterioration of Buckeye’s underwriting and operating results, particularly if the resulting performance causes further erosion of risk-adjusted capitalization. Factors that may lead to positive rating actions include sustained improvement in operating performance while maintaining strong levels of risk-adjusted capitalization and other performance measures.
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
- Evaluating U.S. Surplus Notes
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best’s Ratings & Criteria Center.
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