A.M. Best Affirms Ratings of State Automobile Mutual Insurance Company and Its Operating Subsidiaries

OLDWICK, N.J.--()--A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of “a-” of State Automobile Mutual Insurance Company (State Auto) and its operating subsidiaries. Concurrently, A.M. Best has affirmed the ICR of “bbb-” of State Auto’s intermediate holding company, State Auto Financial Corporation (STFC) [NASDAQ: STFC]. The outlook for each rating is stable. All the above companies are headquartered in Columbus, OH. (See below for a detailed listing of the companies.)

The ratings reflect State Auto’s strong risk-adjusted capitalization, long-standing regional market presence, well-established agency relationships, solid brand name recognition and diversified product offerings. State Auto’s capital position is derived from its sound overall liquidity position, partially offset by above-average underwriting and common stock leverage. Although the group reported an underwriting loss in 2015, results showed substantial improvement over the prior year. These improved results were driven by fewer winter storm losses and significantly lower reserve development compared to 2014. The improved underwriting result, coupled with strong investment income, resulted in positive net income of $67 million for the year, the group’s highest reported level of net income in the past five years. The ratings also reflect the financial flexibility and access to capital through STFC, State Auto’s publicly traded intermediate holding company.

State Auto’s negative rating factors include its exposure to localized tornado/hail storms and hurricane activity, as well as its moderately adverse reserve development reported in recent calendar and accident years. During the earliest years of this latest five-year period, the increased frequency and severity of storm losses adversely impacted State Auto’s underwriting profitability, overall earnings and surplus position. However, these exposures are mitigated through a comprehensive reinsurance program, as well as underwriting initiatives aimed at reducing catastrophe exposures. Recent calendar and accident year reserve development is being driven by greater than expected losses on specialty lines commercial restaurant and large commercial trucking programs, which are now in run off. To mitigate further adverse reserve development in the commercial restaurant program, the company purchased an Adverse Development Cover with $40 million of coverage at the end of 2014. There are also modestly higher than expected development trends on personal auto bodily injury claims being reported.

Positive rating action could occur with a sustained trend of favorable underwriting and operating results while maintaining surplus growth. Negative rating actions could occur if there is a sustained deterioration in underwriting or operating results, an occurrence of a sudden large or catastrophic loss event that materially hinders risk-adjusted capitalization, or if there is any material deviation from the company’s expected results.

The FSR of A- (Excellent) and the ICRs of “a-” have been affirmed for State Automobile Mutual Insurance Company and its following operating subsidiaries:

  • State Auto Property and Casualty Insurance Company
  • Milbank Insurance Company
  • State Auto Insurance Company of Ohio
  • Patrons Mutual Insurance Company of Connecticut
  • Meridian Security Insurance Company
  • State Auto Insurance Company of Wisconsin
  • Rockhill Insurance Company
  • Plaza Insurance Company
  • American Compensation Insurance Company
  • Bloomington Compensation Insurance Company

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.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Jonathan Harris, CFA, FRM
Senior Financial Analyst
+1 908 439 2200, ext. 5771

jonathan.harris@ambest.com
or
Jacqalene Lentz, CPA
Managing Senior Financial Analyst
+1 908 439 2200, ext. 5762

jacqalene.lentz@ambest.com
or
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Contacts

A.M. Best
Jonathan Harris, CFA, FRM
Senior Financial Analyst
+1 908 439 2200, ext. 5771

jonathan.harris@ambest.com
or
Jacqalene Lentz, CPA
Managing Senior Financial Analyst
+1 908 439 2200, ext. 5762

jacqalene.lentz@ambest.com
or
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
+1 908 439 2200, ext. 5644

james.peavy@ambest.com