A.M. Best Affirms Ratings of Auto-Owners Insurance Company and Its Subsidiaries [Manufacturing Close – Up]

Proquest LLC

A.M. Best Co. has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit ratings (ICR) of "aa+" of Auto- Owners Insurance Company (Auto-Owners) and its four wholly owned property casualty subsidiaries: Home-Owners Insurance Company, Owners Insurance Company, Property-Owners Insurance Company and Southern-Owners Insurance Company.

Together these companies comprise the Auto-Owners Insurance Group (AOIG). Additionally, A.M. Best has affirmed the FSR of A+ (Superior) and ICR of "aa-" of Auto-Owners Life Insurance Company (AOLIC), a wholly owned subsidiary of Auto-Owners. The outlook for all ratings is stable. All companies named above are headquartered in Lansing, MI.

The ratings reflect AOIG's superior capitalization, historical trend of solid operating income, experienced management team, blend of personal and commercial product offerings and its long-standing agency relationships. In addition, AOIG has strong risk management techniques and a well-established market position.

These positive factors are partially offset by the group's modest premium growth over the recent five-year period, fluctuating performance in its underwriting results and its concentration of business in Michigan and Florida. As these are AOIG's two leading states, this geographic concentration exposes it to challenging economic, legislative and regulatory environments and weather- related catastrophic events. Additionally, as a member of the Michigan Catastrophic Claims Association (MCCA), AOIG is exposed to rising retentions and credit risk for personal injury protection medical losses.

The ratings of Auto-Owners Life recognize its positive capital and surplus growth trends, increased ordinary life sales, risk- adjusted capitalization, which is more than sufficient to support its insurance and business risks, strong regional market presence and strategic value to AOIG. Challenges faced by Auto-Owners Life include rates of return that are below industry averages, a significant portion of its reserves in interest-sensitive products, exposure to spread compression in the current low interest rate environment and a geographic concentration in which nearly half of its total premiums are generated from Michigan.

While A.M. Best does not expect to downgrade (or place a negative outlook on) the ratings of Auto- Owners or its subsidiaries in the near to mid term, such actions would ensue if the group were to incur material losses in its capitalization; have a severe reduction in the profitability of its core book of business; be unable to contain its exposure to catastrophic events within its underwriting footprint with the current set of preventative measures that have been recently put in place; or have substantial adverse reserve development relative to its peers, as well as the industry's averages.