OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the Financial Strength Rating (FSR) to A+ (Superior) from A++ (Superior) and the Long-Term Issuer Credit Ratings (Long Term ICR) to “aa” from “aa+” of Amica Mutual Insurance Company (Amica Mutual) and its wholly owned subsidiary, Amica Property & Casualty Insurance Company (together known as Amica Mutual Group) (Amica). The outlook of the Long-Term ICR has been revised to negative from stable, while the outlook of the FSR remains stable. Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and the Long-Term ICR of “aa-” of Amica Life Insurance Company (Amica Life), a wholly owned subsidiary of Amica Mutual. The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in Lincoln, RI.
While Amica maintains strong risk-adjusted capitalization, the rating downgrades are related to deteriorating underwriting results in recent years, mainly driven by increased catastrophe losses in conjunction with elevated losses on the automobile insurance line of business, due primarily to increases in claims severity. The group is a direct writer of personal lines property/casualty products. Amica’s net underwriting losses reflect the increasing loss ratio in recent years, which compares unfavorably with similarly A.M. Best-rated peer companies and companies in the private passenger standard auto and homeowners composite. Management has responded with rate increases, and coupled with a return to a more normalized level of loss activity, expects underwriting results to improve in the near future. Additionally, surplus growth has been tempered over the latest five-year period, primarily due to the payment of significant levels of policyholder dividends.
Amica’s results rely heavily on net investment income and realized capital gains, which have collectively contributed to positive operating cash flows in most years. In 2015, the group reported negative operating cash flow due to their higher-than-normal catastrophe experience; however, they were able to generate positive cash flows from operations in 2016. The ratings also reflect Amica’s strong, yet declining, level of risk-adjusted capitalization, reflective of a high quality investment portfolio and relatively low underwriting leverage, solid liquidity, generally favorable operating returns and national market presence and brand recognition, with a reputation for excellent customer service.
Amica Life’s ratings reflect the company’s strategic role within Amica Mutual, strong capitalization levels driven by profitable operations, absence of shareholder dividends and its ongoing initiatives to grow life insurance premium and strengthen its market penetration within Amica Mutual’s policyholder base. In addition to growing the business through the existing captive relationship, the company continues expansion efforts to external customers. Offsetting rating factors include challenges associated with asset-liability matching, reinvestment risk given the continued low interest rate environment, modest penetration of its parent’s large customer base and reduced earnings due to increased expenses associated with the company’s plan to expand outside of the captive property/casualty client base.
This press release relates to Credit Ratings 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. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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