A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer crediting ratings to "a-" from "a" of Slavonic Mutual Fire Insurance Association and its wholly owned subsidiary, Slavonic Insurance Company of Texas (both domiciled in Rosenberg, TX) (together known as Slavonic Mutual Group).
The outlook for all ratings has been revised to stable from negative.
The rating actions reflect Slavonic Mutual Group's unfavorable underwriting performance led by underwriting losses in four of the last five years primarily due to adverse weather-related events; the negative trend continued through the second quarter of 2012. In addition, the group's expense ratio is elevated due to scale, and its business profile is very limited as it writes a limited product base within a declining niche market. In addition, it operates within a tight geographic spread in Texas, which exposes it to frequent and severe localized weather events.
The revised outlook recognizes Slavonic Mutual Group's strong risk-adjusted capitalization and consistent net earnings primarily driven by solid investment income, which ultimately has resulted in surplus growth in the most recent years and through the second quarter of 2012. In addition, the group maintains a conservative investment philosophy and balance sheet liquidity measures.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; and "Rating Members of Insurance Groups." Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.
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