A.M. Best Downgrades Ratings of Founders Insurance Company; Affirms Ratings of Utica Mutual Insurance Company and Its Affiliates [Professional Services Close – Up]

A.M. Best Co. has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and issuer credit rating (ICR) to "bbb+" from "a-" of Founders Insurance Company (Founders) (Des Plaines, IL).

The outlook for the FSR is stable, while the outlook for the ICR has been revised to negative from stable.

In addition, A.M. Best has affirmed the FSR of A- (Excellent) and the ICRs of "a-" of Utica Mutual Insurance Company (Utica Mutual) (New Hartford, NY) and its intercompany pool participants and reinsured affiliates, collectively referred to as Utica. The outlook for Utica's ratings is stable.

The downgrading of the ratings for Founders is based on the deterioration in underwriting performance over the last four years. Since 2009, Founders' results have suffered due to soft market conditions, increased losses on its general liability and liquor liability books of business and weather-related events. Further, Founders' underwriting performance historically has been impacted by an elevated expense ratio, primarily driven by high agency commissions.

While management has taken and continues to implement steps to improve underwriting and operating performance, reported results have not reflected these actions to date. It is expected that it may take several years for Founders to generate a sustainable, consistent underwriting profit. It is A.M. Best's expectation that Founders' ultimate parent, Utica Mutual, will continue to provide support during this period via reinsurance, management and underwriting expertise.

The stable outlook on Founders' FSR acknowledges its adequate level of risk-adjusted capitalization, coupled with the benefits derived from its 2010 affiliation with Utica. The negative outlook for the ICR reflects the uncertainty surrounding improvement in underwriting and operating results in the immediate term.

Factors that could result in future negative rating actions include a continued deterioration in Founders' underwriting performance or if a supportive level of risk-adjusted capitalization is not maintained.

The ratings of Utica recognize its solid risk-adjusted capitalization, strong risk management culture and local presence in target markets. Further, the ratings take into account management's continued efforts to achieve rate adequacy, operating efficiencies and reserve stability.

Partially offsetting these strengths are Utica's elevated expense structure, the earnings drag that asbestos-related charges have had over the last few years and the impact of weather-related losses on underwriting results. In 2012, Utica sold off the majority of its asbestos liabilities, aiming to reduce income volatility prospectively.

Negative rating action for Utica could occur if a supportive level of risk-adjusted capitalization is not maintained, underwriting results do not improve and operating earnings do not begin to stabilize.

The FSR of A- (Excellent) and ICR of "a-" have been affirmed for Utica Mutual Insurance Company and its following affiliates:

-Graphic Arts Mutual Insurance Company

-Republic-Franklin Insurance Company

-Utica National Assurance Company

-Utica National Insurance Company of Texas

-Utica Lloyd's of Texas

-Utica National Insurance Company of Ohio

-Utica Specialty Risk Insurance Company

More information:

ambest.com

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