KBRA Assigns Insurance Financial Strength Rating to Mutual Assurance Society of Virginia

NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns an insurance financial strength rating (IFSR) of A to Mutual Assurance Society of Virginia (MAS). The Outlook for the rating is Stable.

The ratings reflect MAS’ strong surplus growth over the last five and ten years, resulting in conservative underwriting leverage ratios that are well below the industry average. The surplus position also gives MAS the ability to withstand extreme tail events, including a 1-1000-year hurricane. Further, MAS maintains a strong liquidity position, with 40% of its bond portfolio having a maturity of less than one year, which adequately aligns with its short-tailed property lines.

MAS operates as a mutual assessment company for the sole benefit of its member policyholders and is supported by management’s prioritization of the long-term financial strength of the enterprise, as evidenced by excess capital, strict underwriting selection, and modest policy growth. Further, MAS’ local market knowledge, long-standing agency relationships and the use of a perpetual homeowners policy, has resulted in customer retention of approximately 95% for the last 10 years.

Balancing these strengths are MAS’ heightened level of investment risk, with equities comprising 72% of the investment portfolio. In addition, the top four holdings account for 18% of the equity portfolio. As such, the company’s surplus is exposed to volatility, as evidence by the significant decline in the asset portfolio due to the financial market downturn from COVID-19. However, the investment portfolio substantially rebounded by May 31, 2020. In addition, this is somewhat offset by the high-quality bond portfolio, which is comprised solely NAIC 1 securities. Further, although aligned with its business model, MAS has unfavorable statutory metrics, with elevated loss and expense ratios. Lastly, key person risk exists with several of its executives. KBRA believes MAS should continue to formalize and strengthen their ERM processes and procedures.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.