A.M. Best Affirms Ratings of American Modern Home Insurance Company and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co.has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of American Modern Home Insurance Company (AMHIC) (Amelia, OH) and its subsidiaries. The outlook for these ratings is stable. (See below for a detailed listing of the companies.)

Munich Reinsurance Company (Munich Re) (Germany), the ultimate parent of AMHIC, has extended its ratings to AMHIC and its subsidiaries, due to implicit and explicit support provided by Munich Reinsurance America, Inc. (Munich Re America) (Princeton, NJ), which also carries the ratings of its ultimate parent, Munich Re. AMHIC and its subsidiaries are owned byMunich-American Holding Corporation, the U.S.-based subsidiary of Munich Re.

The ratings of AMHIC and its subsidiaries reflect their strong risk-adjusted capitalization, favorable operating performance and continued strategy as providers of diversified specialty personal lines insurance products. These positive rating factors are derived from AMHIC management’s disciplined and focused operating strategies. The companies have achieved significant surplus growth over the previous five-year period through solid investment income, and in most years, favorable underwriting performance. As AMHIC and its subsidiaries continue to offer specialty personal lines products with a niche market focus, they provide a significant competitive advantage, particularly in terms of pricing, claims adjusting and overall marketing strategies. This has contributed to the companies’ ability to sustain direct premium growth in a competitive environment. The ratings also acknowledge the financial flexibility afforded AMHIC and its subsidiaries as part of the Munich-American Holding Corporation organization and the surplus relief provided by a 90% quota share reinsurance contract on its manufactured home business with Munich Re America.

Partially offsetting these positive rating factors are AMHIC and its subsidiaries’ above average underwriting leverage and elevated underwriting expense ratio relative to industry composite norms and their susceptibility to catastrophe events, as approximately 52% of their business is residential property. The elevated underwriting expense ratio is primarily attributable to a competitive commission expense structure, particularly in terms of its profitability based incentives. As the companies have a concentration of business in the residential property market, they are exposed to the impact of weather-related catastrophes. This was evident in 2011, when underwriting results deteriorated due to an increased frequency and severity of Midwestern wind and hail storm losses in the companies’ residential and personal property segments. However, AMHIC and its subsidiaries continue to maintain their reinsurance programs and more selectively spread their geographic risks in catastrophe-prone areas to mitigate potential effects of future catastrophic events.

While the ratings for AMHIC and its subsidiaries are stable, positive rating actions could occur if there is sustained long-term improvement in their operating performance and continuation of strong overall capitalization. Negative rating actions could occur as a result of continued deterioration in the negative operating performance trends that occurred in 2011, driven by severe weather-related losses.

The FSR of A+ (Superior) and ICRs of “aa-” have been affirmed for American Modern Home Insurance Company and its following subsidiaries:

• American Family Home Insurance Company
• American Western Home Insurance Company
• American Modern Surplus Lines Insurance Company
• American Modern Select Insurance Company
• American Southern Home Insurance Company
• American Modern Insurance Company of Florida, Inc.
• First Marine Insurance Company
• American Modern Lloyds Insurance Company

The FSR of A+ (Superior) and the ICR of “aa-” have been withdrawn for American Modern Insurance Group.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; and “A.M. Best’s Ratings & the Treatment of Debt.” Methodologies 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.
Kenneth Tappen
Senior Financial Analyst
908-439-2200, ext. 5248
kenneth.tappen@ambest.com
or
Joseph Burtone
Assistant Vice President
908-439-2200, ext. 5125
joseph.burtone@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com

Source: A.M. Best Co.