A.M. Best Affirms Ratings of Standard Casualty Company

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer crediting rating "a-" of Standard Casualty Company (Standard Casualty) (New Braunfels, TX).

The outlook for both ratings is stable. Standard Casualty is a subsidiary of Cavco Industries Inc. (Cavco) (Delaware) (NASDAQ: CVCO), a manufacturer of factory-built homes.

The affirmation of the ratings reflects Standard Casualty's adequate risk-adjusted capitalization, generally favorable operating results and excellent local market knowledge. During the latest five- year period, Standard Casualty has reported positive pre-tax operating income driven by favorable net investment income and, to a lesser extent, underwriting income generated in earlier years. In recent years, increased weather-related events along with fire losses have deteriorated Standard Casualty's underwriting and overall operating results. Standard Casualty maintains a fairly conservative investment portfolio that has generated positive net income and has partially mitigated underwriting losses in recent years. Furthermore, the company benefits from the financial flexibility of Cavco, which made a capital infusion to Standard Casualty in 2012 to assist in its aggressive growth initiative.

These positive rating factors are partially offset by Standard Casualty's recent operating losses driven by frequent and severe weather-related events along with above average fire losses. As a result, underwriting losses were reported in 2011 and 2012. Although Standard Casualty's underwriting performance has improved in 2013, A.M. Best anticipates that it may continue to experience underwriting volatility due to its on-going aggressive growth and inherent exposure to frequent and severe weather-related events. A.M. Best remains concerned with the execution risk associated with Standard Casualty's aggressive growth in Arizona and New Mexico, which has reduced its overall risk-adjusted capitalization. In addition, as a predominate Texas writer, Standard Casualty is exposed to potential judicial, regulatory and economic concerns. However, these risks are partially mitigated as Standard Casualty historically has adhered to strict underwriting guidelines and a conservative operating philosophy.

Negative rating pressure may be put on Standard Casualty's ratings and outlook should its growth strategy result in operating losses and loss of surplus, which may lead to weaker risk-adjusted capitalization. Positive rating actions are dependent upon Standard Casualty's successful execution of its growth plan and its ability to consistently produce favorable operating results and organic surplus growth while maintaining supportive capitalization and adequate leverage measures.

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. Best's Credit Rating Methodology: ambest.com/ratings/methodology.

A.M. Best Company is an insurance rating and information source.

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