A.M. Best Changes Outlook to Stable for Cumberland Mutual and CIC

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength ratings of A- (Excellent) and issuer credit ratings of "a-" of Cumberland Mutual Fire Insurance Company (Cumberland Mutual) and its subsidiary, Cumberland Insurance Company, Inc. (CIC) (both headquartered in Bridgeton, NJ).

According to a release, the revised outlook reflects Cumberland Mutual's and CIC's strong risk-adjusted capitalization and recently improved operating performance due in large part to management's strategic initiatives.

Cumberland Mutual's strong capital position is primarily derived from its moderate underwriting leverage, which is slightly higher than industry norms. Cumberland Mutual maintains its established market presence and long-standing relationships through its independent agency force. In an effort to improve underwriting results, Cumberland Mutual has implemented numerous strategic initiatives to update its technology and processes. These strategic initiatives include rate adjustments, deleveraging unprofitable premium, enhanced pricing tools, stricter underwriting guidelines and improved rate adequacy on coastal accounts. Additionally, Cumberland Mutual has continued its strategy of reducing its geographic concentration through the expansion of its core products outside of New Jersey. A reinsurance program reduces Cumberland Mutual's net exposure to a catastrophe event to a manageable level. These strategic initiatives and less severe weather have resulted in improved underwriting results, operating earnings and surplus position in 2013.

These positive rating factors are partially offset by Cumberland Mutual's unfavorable five-year operating performance and surplus deterioration, which were driven by significant underwriting losses and gradually declining net investment income. The underwriting losses were primarily driven by an increased frequency and severity of storm losses, greater fire loss activity, adverse loss reserve development on its homeowners and commercial multi-peril lines of business, higher reinsurance costs and increased underwriting expenses associated with product and systems development. Due to its property concentration in the Northeast, Cumberland Mutual is exposed to weather-related losses, as well as adverse judicial and regulatory actions.

CIC's capital position is primarily derived from its modest underwriting leverage and favorable loss reserve development. CIC's five-year pre-tax returns on revenue and equity also compare favorably to industry norms, driven by profitable five-year underwriting results. Furthermore, the ratings reflect the financial and operating support and common management provided by Cumberland Mutual.

Partially offsetting these positive rating factors is CIC's declining premium volume and geographic concentration within New Jersey. The company's net premiums earned declined moderately over the previous five-year period, reflective of significant audit returns due to economic conditions, as well as state-mandated workers' compensation rate reductions. In addition, CIC's geographic concentration within New Jersey exposes it to competitive market conditions, as well as adverse judicial and regulatory actions.

Negative rating actions could occur on Cumberland Mutual's ratings from a continuation of its adverse operating performance and/ or surplus deterioration reported over the previous five-year period, driven by severe weather-related losses.

Negative rating actions could occur on CIC's ratings from unfavorable operating performance and/or surplus deterioration, potentially driven by adverse development on its workers' compensation line of business and/or a downgrading of the ratings of Cumberland Mutual.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides an explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process.

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

More information:

www.ambest.com.

www.ambest.com/ratings/methodology

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