OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating to “bbb-” from “bbb” of Imperial Fire and Casualty Insurance Company(Imperial)(Opelousas, LA). The outlook has been revised to stable from negative.

The rating actions reflect Imperial’s generally negative underwriting performance, which could not be offset by its declining investment income. This has led to pre-tax operating losses in three of the past five years. In addition, increased underwriting losses in 2011 as reflected by a combined ratio of approximately 108%, primarily caused by catastrophe and other weather-related events has hindered the company’s capital base. This is reflected by an approximately 10% decline in surplus in 2011, which has caused risk-adjusted capitalization to somewhat decline over the past year.

Additionally, Imperial’s core personal auto line of business has continued to underperform partly due to unfavorable results from its relatively newly acquired Florida book. Weather-related losses primarily in the Texas property book has led Imperial to undertake several underwriting initiatives including restraining net premium exposures, taking aggressive rate increases, placing a greater emphasis on risk management tools such as policy scoring and territorial pricing, and exploration of additional capital resources. However, despite these efforts to turn around its operating performance and improve its risk-adjusted capitalization, the company still faces a challenging operating environment for 2012.

Although Imperial’s risk-adjusted capitalization level is consistent with its current rating level, further downward movement in the form of a revised outlook and/or a downgrading of the ratings could occur should there be a continued deterioration in Imperial’s risk-adjusted capitalization levels and/or a continuation of its recent negative operating performance trend. While upward movement in the ratings is unlikely in the near term, an eventual improvement in the ratings and/or outlook will require significant improvement in the company’s risk-adjusted capitalization, along with a turnaround in its underwriting performance and operating results.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding BCAR for Property Casualty Insurers”; “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best Ratings”; and “Equity Credit for Hybrid Securities.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Neil Das Gupta, 908-439-2200, ext. 5206
Senior Financial Analyst
neil.dasgupta@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Joseph Burtone, 908-439-2200, ext. 5125
Assistant Vice President
joseph.burtone@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Source: A.M. Best Co.