OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of CEM Insurance Company (CEM) (Deer Park, IL).
The stable outlooks are based on CEM’s improved operating and underwriting results over the past several years, driven primarily by the company’s focus on its Texas private passenger automobile business and exit from former commercial lines businesses. As a result, CEM’s five-year average combined and operating ratios compare slightly favorable to the averages for the private passenger standard automobile composite. Furthermore, CEM’s surplus has shown steady growth in recent years due to its above average underwriting performance coupled with an increasing level of net investment income.
The Credit Rating (rating) affirmations reflect the group’s supportive level of risk-adjusted capitalization, improved operating performance, better-than-average loss ratios and the history of financial support provided by its shareholders.
The positive rating factors are offset somewhat by the company’s business and geographic concentration risk; operating predominantly as a non-standard private passenger auto writer in one state (Texas), subjecting the company to the regulatory, judicial and economic environment of the state.
Additional offsetting rating factors include CEM’s high gross and ceded leverage measures and associated heightened level of credit risk and the company’s history of adverse prior year loss reserve development. To address the high leverage concerns, the company has increased its retention under its quota share reinsurance program over time, and maintains a panel of authorized reinsurers of high credit quality and holds collateral for all unauthorized reinsurers’ aggregate liabilities.
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