A.M. Best Downgrades Issuer Credit Rating of Eveready Insurance Company; Revises Outlook to Negative

A.M. Best Co. has downgraded the issuer credit rating (ICR) to "bb" from "bb+" and affirmed the financial strength rating of B (Fair) of Eveready Insurance Company (Eveready) (New York, NY). The outlook for both ratings has been revised to negative from stable.

The ratings reflect Eveready's accelerated premium growth, elevated underwriting leverage, geographic risk concentration and comparatively high expense structure. These negative rating factors are partially offset by the company's adequate risk-adjusted capitalization, management's local market knowledge and its conservative investment portfolio. The outlook reflects the company's accelerated growth, which, if too excessive, could erode its capital base in the near to mid term.

Eveready's elevated reserve leverage is due to its highly litigious downstate New York automobile marketplace. As a result, operating results are subject to changes in the regulatory and legislative environment, as well as competitive market pressures. Elevated underwriting leverage measures have been attributed to competitive market conditions and the company's business mix change, which emphasizes automobile physical damage business. In addition, Eveready's earnings over the past several years have been tempered by persistent unprofitable underwriting results and an elevated expense structure.

These negative rating factors are partially offset by Eveready's loss experience, which has been favorable in recent years as reflected by its five-year average pure loss ratio derived from management's local market expertise and strong relationships with key producers. Operating performance has further benefited from the company's profitable physical damage book, newly launched underwriting system accompanied by a new pricing structure, as well as other income generated through installment fees. Additionally, Eveready uses its "No-Fault Billing Projection Model" as an effective monitoring tool to assist in forecasting ultimate no-fault losses.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.