A.M. Best Downgrades Ratings of Frankenmuth Insurance and Its Members

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) and issuer credit ratings to “a+” from “aa-” of Frankenmuth Insurance (Frankenmuth) and its member companies. The outlook for these ratings has been revised to stable from negative. The ratings apply to and are based upon the consolidated position of Frankenmuth Mutual Insurance Company and its four pooling members, Ansur America Insurance Company, Patriot Insurance Company (Patriot), ASure Worldwide Insurance Company and Fortuity Insurance Company. All Frankenmuth pool members are domiciled in Frankenmuth, MI, except for Patriot, which is domiciled in Yarmouth ME.

Therating downgradesreflect Frankenmuth’s declining operating performance over a five-year period. Although Frankenmuth’s return measures have significantly improved in 2009, over an unusually poor 2008, and have remained largely positive over a five-year period, they have trailed their commercial casualty peer composite. The organization’s underwriting expense ratio has increased in recent years, primarily due to its incurring short-term costs for its long-term benefit, including expansion into the Southeast, acquisition of Patriot in 2007 and one time, pension related charges, which included the curtailment of its pension plan. Although the organization has expanded its geographic footprint in recent years, premiums remain concentrated in the Midwest, exposing Frankenmuth to regional competition and storm losses. Additionally, 60% of Frankenmuth’s premiums are written in Michigan, and the group remains somewhat exposed to that state’s weakened economic conditions, regulatory issues and weather-related loss activity.

Offsetting these negative rating factors are Frankenmuth’s very strong capitalization, historically favorable loss ratios (primarily due to its conservative underwriting philosophy), significantly improved 2009 operating results, solid regional market presence and management’s effort to improve its geographic concentration. Frankenmuth’s leverage improved in 2009 on modest underwriting earnings, positive capital gains and a deferred tax benefit.

The group has expanded its geographic footprint via broadening its commercial lines products into the Southeast and acquisition of Patriot, which provided for expansion of commercial lines products in the Northeast to complement Patriot’s existing personal lines business. In addition, Frankenmuth has leveraged its strong capitalization and solid market presence to expand the distribution of its personal lines business in Michigan and Ohio, with the addition of new independent agencies. The organization’s expansion has been cautious, and to date, its new writings have been largely profitable. The outlook reflects the group’s strong capitalization and largely positive operating results, which has led to overall surplus growth on a five- and ten-year basis.

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.

A.M. Best Company
Analysts
Marc Liebowitz, 908-439-2200, ext. 5071
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or
Gerard Altonji, 908-439-2200, ext. 5626
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or
Public Relations
Rachelle Morrow, 908-439-2200, ext. 5378
[email protected]
pr
Jim Peavy, 908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Company