A.M. Best Downgrades Ratings of Southern Mutual Church Insurance Company [Manufacturing Close – Up]

A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit rating to "a-" from "a" of Southern Mutual Church Insurance Company (SMCIC) (Columbia, SC).

The outlook for both ratings has been revised to negative from stable.

The rating actions reflect SMCIC's poor underwriting and operating results in recent years, its geographic concentration of risk and its susceptibility to natural catastrophe events, as evidenced by the company's sizeable catastrophe related losses in recent years and the outcome from its modeled catastrophe loss. SMCIC's business profile is somewhat geographically concentrated relative to its rating level, as more than 80 percent of its writings are derived from two southeastern states, which leaves the company exposed to regulatory, competitive and catastrophe risks. The outlook reflects A.M. Best's concern that further storm activity may materially impact earnings and capitalization as well as the execution risk associated with management's turnaround efforts.

Offsetting these negative rating factors are SMCIC's adequate level of capitalization, management's efforts to improve operating results going forward and the company's established presence in its niche market of providing coverages to churches and religious organizations. The company also benefits from strong relationships with its insured base focusing on customer service and efficient claims management. Management continues to tighten underwriting standards, enhance loss prevention measures, while achieving better rate adequacy on new and renewal business as well as refining SMCIC's reinsurance program.

Further negative rating actions may occur if SMCIC's poor underwriting performance persists, causing a further deterioration in its risk-adjusted capitalization.

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" and "Understanding BCAR for Property/Casualty Insurers." Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

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

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