Midwest Ratings Roundup
Upgraded Ratings for Northwest G.F. Mutual Insurance
AM Best upgraded the Financial Strength Rating to B++ (Good) from B+ (Good) and the Long-Term Issuer Credit Rating to “bbb” from “bbb-” of Northwest G.F. Mutual Insurance Co. (NWGF), a farm and personal lines insurer in Eureka, South Dakota. The outlook has been revised to stable from positive.
The ratings reflect the property/casualty insurer’s balance sheet strength, which is categorized as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The operating performance assessment was revised upward to adequate from marginal. NWGF has shown a clear trend of improved operating return measures over the past five years. The improved results have been driven predominantly by improved underwriting performance, particularly incurred losses and loss adjustment expenses. NWGF’s improved operating results have fueled robust growth in policyholders’ surplus over the past five years.
The balance sheet assessment of strong reflects risk-adjusted capitalization being at the strongest level and improving underwriting and reserving leverage measures, which are offset by the company’s limited financial flexibility and scale of operations.
The limited business profile assessment is driven largely by NWGF’s geographic concentration in North and South Dakota, which exposes results to frequent and severe weather-related events, as well as potential judicial, economic or regulatory challenges.
The appropriate ERM assessment is driven by an evolving risk management framework, and risk management capabilities that remain appropriately commensurate with the complexity of the business.
Grinnell Mutual Reinsurance Upgraded
AM Best upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “a+” from “a” and affirmed the Financial Strength Rating (FSR) of A (Excellent) of Grinnell Mutual Reinsurance Co. and its subsidiary, Grinnell Select Insurance Co., in Grinnell, Iowa. The companies are collectively referred to as Grinnell Mutual Group (Grinnell).
The outlook of the Long-Term ICR for the group has been revised to stable from positive while the outlook for the FSR remains stable.
The ratings reflect Grinnell’s balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The upgrade of the Long-Term ICR reflects Grinnell’s consistent and stable operating performance over the past five years. The group’s five-year average combined and operating ratios compare favorably to the personal lines composite. Grinnell has taken steps to improve its underwriting profitability for its direct and assumed books of business and continues to monitor pricing.
Grinnell’s balance sheet strength level reflects its strongest level of overall risk-adjusted capitalization, conservative investment portfolio, favorable liquidity and prudent reserving practices.
The group generated surplus in each of the past five years, resulting in reduced net and gross underwriting leverage measures. Grinnell’s adequate operating performance reflects the group’s improved underwriting profitability, which when coupled with steady net investment income has resulted in positive pre-tax operating income and net income in each of the past five years.
Grinnell’s business profile is neutral, supported by its mix of personal lines, commercial lines, assumed reinsurance business and its solid foothold in the farm property reinsurance market. However, Grinnell’s geographic concentration in the Midwest creates susceptibility to frequent and severe weather-related events.
Grinnell’s ERM is appropriate for its size and scope as a regional (re)insurance organization. It maintains a strong governance process and formalized risk management program, which is used to identify, prioritize, and manage material risks to the group’s business objectives.
Brotherhood Mutual Insurance Credit Ratings Downgraded
AM Best downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Rating to “a-” from “a” of Brotherhood Mutual Insurance Co. (Brotherhood) in Fort Wayne, Indiana.The outlook is stable.
The ratings reflect Brotherhood’s balance sheet strength, categorized as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The rating actions reflect deterioration in Brotherhood’s overall balance sheet strength due to a decline in its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and the instability of its loss reserves following a significant increase in net carried reserves in third-quarter 2018.
Beginning in late 2017 and continuing in 2018, Brotherhood strengthened its reserve position across all core business lines following several consecutive years of adverse development reported on prior accident years. According to management, the underlying factors supporting this strengthening process were to develop a more conservative reserve position and to adopt industry best practices.
Overall, the company’s strong balance sheet is supported by a very strong level of risk-adjusted capitalization, high quality assets with adequate liquidity, partially offset by ongoing adverse reserve development that spiked in 2018, and above-average common stock leverage.
Operating performance has been adequate in most years, derived from generally profitable underwriting results and supported by a steady flow of net investment income.
In 2018, despite the negative impact from Hurricanes Florence and Michael, as well as the California Camp Fire, underwriting losses were driven primarily by the company’s reserve strengthening actions.
Brotherhood’s neutral business profile reflects its geographic diversification, as it operates in most states and serves a market niche providing coverages to churches and related ministry organizations. AM Best considers the ERM program to be appropriate for the company’s risk profile, with enhanced capabilities in assessing risk tolerance levels. Brotherhood’s catastrophe exposure is managed through a comprehensive reinsurance program to mitigate losses.
That stable outlooks are based on AM Best’s expectation of Brotherhood maintaining a strong balance sheet and operating performance returning to pre-2018 levels despite its ongoing exposure to weather-related events, with approximately 60 percent of loss exposures being property related.