OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICR of “aa” of the property/casualty (P/C) members of Erie Insurance Group (Erie). The outlook of the FSR is stable. Additionally, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of Erie Family Life Insurance Company (EFL). The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in Erie, PA, unless otherwise specified.
Erie Insurance Exchange is the lead company in the Erie group; the remainder of the P/C group comprises inter-company pooling members, Erie Insurance Company and Erie Insurance Company of New York (Rochester, NY), and reinsured subsidiaries Erie Insurance Property & Casualty Company and Flagship City Insurance Company.
The ratings reflect Erie’s balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The balance sheet strength assessment considers Erie’s risk-adjusted capitalization, strong liquidity, low underwriting leverage, consistent surplus growth and historically favorable loss reserve development. Erie’s consistent net income is supported by its investment strategy, which generates returns over the long-term that are above its industry peers. While Erie does have a geographic concentration issue in the mid-Atlantic region, which exposes the group to weather-related losses, regulatory changes and competitive market pressure, this issue is offset by the relationships that it maintains with its independent agency force, many of which are second and third generation contracts.
The revision of Erie’s Long-Term ICR outlook to negative reflects the decline in the company’s operating performance, which trails its peers due primarily to weather-related losses. While Erie’s investment performance remains strong, underwriting results have deteriorated and lag similarly related peers due in part to an increase in its loss ratio. If these trends continue, there could be a downward revision in Erie’s operating performance building-block assessment.
The ratings of EFL reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. These ratings also consider the lift from Erie, based on its strategic importance in supporting the overall strategy of selling life and annuity products to the group’s property/casualty client base.
EFL’s rating affirmations represent its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as the company’s good quality of surplus and low reliance on reinsurance. Invested assets are primarily allocated to investment grade bonds that are diversified across industries and sectors. The company continues to execute on its strategy to provide additional value to its consumers through ordinary life and individual annuity products, and more recently Medicare supplement. AM Best notes that statutory strain continues to impact overall statutory profitability despite favorable sales growth.
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