A.M. Best Downgrades Ratings of Lititz Mutual Insurance Company and Its Affiliates

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) and the issuer credit ratings to “a” from “aa-” of Lititz Mutual Insurance Company (Lititz), and its three reinsured affiliates: Farmers’ and Mechanics’ Mutual Insurance Company,Livingston Mutual Insurance CompanyandPenn Charter Mutual Insurance Company.The outlook for all ratings has been revised to stable from negative. All companies are domiciled in Lititz, PA.

The rating actions reflect Lititz’s volatile underwriting and operating results and corresponding fluctuation in policyholders’ surplus. Recently, Lititz’s results were significantly impacted by weather-related losses, specifically wind/hail storms, tornados and Hurricane Irene. Lititz’s performance metrics in recent years as well as over the longer term considerably lag the personal property composite driven by experience in states where pricing has been inadequate and catastrophe losses have escalated. Although risk-adjusted capitalization remains favorable, it has declined over the last 10 years. The company’s surplus decreased 13% in 2011 due to significant underwriting losses; however, policyholders’ surplus increased 12% over the last 10 years.

Offsetting these negative rating factors are Lititz management’s extensive operating and underwriting strategies designed to improve its overall performance. Actions taken include rate increases, adoption of predictive analytics and the implementation of new policy and claims processing systems. Additionally, Lititz maintains an established market presence among its long-standing independent agents.

Although Lititz’s core lines of business will likely continue to face ongoing exposure to weather-related events and challenging competitive market conditions, continuance of favorable risk-adjusted capitalization will allow for some volatility in operating performance relative to its current rating level.

While the outlook is stable, negative rating actions may occur if significant underwriting losses persist or there is a large decline in the book value of Lititz’s invested assets, which are heavily concentrated in common stocks, resulting in a reduction in policyholders’ surplus and/or deterioration in its risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio.

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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; and “Catastrophe Analysis in A.M. Best Ratings.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Adrienne Tortoriello, 908-439-2200, ext. 5088
Financial Analyst
[email protected]
or
Rick Decker, 908-439-2200, ext. 5423
Assistant Vice President
[email protected]
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
[email protected]
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.