OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” of Employers Mutual Casualty Company (EMCC) and its six property/casualty subsidiaries (collectively referred to as EMC Insurance Companies), which operate under an inter-company pooling agreement led by EMCC. In addition, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” of EMCC’s separately rated, indirectly owned subsidiary, EMC Reinsurance Company (EMC Re). Furthermore, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of “a-” of EMC National Life Company (EMCNL). Concurrently, A.M. Best has affirmed the ICR of “bbb” of EMC Insurance Group Inc. (EMCI) [NAS: EMCI], a downstream holding company majority owned by EMCC. The outlook for each rating is stable. All of the EMC entities are domiciled in Des Moines, IA, except for Dakota Fire Insurance Company, which is domiciled in Bismarck, ND. (See below for a detailed listing of the companies.)
The ratings of EMC Insurance Companies and EMC Re reflect their excellent level of risk-adjusted capital, supportive earnings, consistently favorable loss reserve development and favorable core underwriting results, as well as the benefits these companies will continue to derive from management’s actions in recent years to improve pricing and risk selection, claims management and reserving methodology. The group has developed and implemented predictive modeling tools and sophisticated monitoring systems as part of its overall risk management program, which have resulted in an improved ability to differentiate and monitor risk concentrations and to quantify and track the quality of business over time. These tools are leveraged by the group’s extensive regional network and supported by long-standing agency relationships. These enhancements were designed to enable management to more effectively manage the group’s business through market cycles, resulting in improved underwriting performance since 2011.
Partially offsetting these positive rating factors are EMC Insurance Companies’ and EMC Re’s exposure to weather and catastrophe-related events, elevated (but manageable) common stock leverage and continued challenging, albeit improving, market conditions in the group’s core markets. Further offsetting rating factors for EMC Re are its significant dependence on EMCC; its exposure to natural catastrophe and weather events; and the competitive challenges associated with its position as a smaller company in the reinsurance market, which has grown more competitive on increased capacity driven by the infusion of capital from alternative markets.
The affirmation of EMCNL’s ratings reflects the company’s strategic importance in marketing life and annuity products to its parent’s property/casualty client base. EMCNL also benefits from the use of EMCC’s property/casualty distribution, shared services, such as investment management, common management, and explicit support from its parent when needed. The quality of EMCNL’s surplus is considered strong due to the overall good credit quality of invested assets, manageable financial leverage from preferred stock, low use of reinsurance and no state-permitted or prescribed practices. The company’s earnings have been positive but have fluctuated in recent years as due to the impacts of new business strain, adverse mortality, lower investment spreads and miscellaneous expenses. Lastly, the company is considered a strong regional insurer.
A partially offsetting rating factor is the elevated exposure to interest-sensitive liabilities that also have relatively high minimum guaranteed crediting rates. Another offsetting rating factor is the high percentage of annuity liabilities that lack surrender protection, which could lead to disintermediation risk if interest rates rise rapidly. While EMCNL considers the workplace market a significant part of their business profile and marketing strategy, the business currently provides just a modest contribution in terms of premiums and earnings. In addition, the workplace market can be highly competitive, which adds to the challenges of growing this business.
EMCNL continues to maintain a strong relationship with EMCC, which is reflected in EMCNL’s ratings. While EMCC has a majority economic interest in EMCNL, EMCC maintains a minority voting interest. EMCNL’s board of directors, which includes the presidents of EMCC and EMCNL, is integrated and supports both legal entities in the group. Consequently, A.M. Best deviated from its “Rating Members of Insurance Groups” methodology regarding the lack of common voting ownership among the group members.
The ratings of EMCI recognize the capital strength of its property/casualty affiliates, the support of EMCC and the absence of financial leverage, with no outstanding debt.
The FSR of A (Excellent) and the ICRs of “a” have been affirmed, each with a stable outlook, for Employers Mutual Casualty Company and its following property/casualty subsidiaries:
- Dakota Fire Insurance Company
- EMC Property & Casualty Company
- EMCASCO Insurance Company
- Hamilton Mutual Insurance Company
- Illinois EMCASCO Insurance Company
- Union Insurance Company of Providence
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 see A.M. Best’s Recent Rating Activity web page.
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