A.M. Best Upgrades Ratings of Florida Hospitality Mutual Insurance Company

A.M. Best Co. has upgraded the financial strength rating to A- (Excellent) from B++ (Good) and issuer credit rating to “a-” from “bbb+” of Florida Hospitality Mutual Insurance Company (FHM) (Jacksonville, FL). The outlook for both ratings has been revised to stable from positive.

The rating actions reflect FHM’s excellent capitalization, strong operating results over the recent five-year period and solid presence within its established market segment. The positive attributes reflect the company’s focused underwriting and aggressive claims management, which has produced relatively solid underwriting results over the recent five-year period, despite a significant reduction in workers’ compensation rates within Florida since legislative reforms were passed in 2003.

Although FHM was founded with a specific focus on the hospitality, service and leisure industries, management has profitably diversified through expansion into food and beverage distributors, artisan and trade organizations and health care firms. In addition, in an effort to geographically diversify operations and mitigate the business profile risks of being focused solely on the Florida workers’ compensation market, FHM began writing business in Georgia on a limited basis during 2007, with modest expansion into contiguous southeastern states in more recent years.

These positive rating factors are somewhat offset by challenging market conditions in the workers’ compensation line of business and FHM’s concentrated business risk, operating as a monoline writer with a somewhat limited geographic spread that exposes it to additional competitive pressures and regulatory issues such as state reforms and mandated rate reductions. In addition, as a result of competitive market conditions, state mandated rate reductions, audit premium adjustments and the state of economy, the company’s underwriting performance has deteriorated in more recent years, and management has recorded a significant increase in the latest accident year loss ratio. While there are some concerns that underwriting results will continue to be negatively impacted by weak macroeconomic conditions and the accumulation of state mandated rate decreases, the rating outlook reflects FHM’s relatively strong operating performance, excellent risk-adjusted capitalization and solid niche market knowledge.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “The Treatment of Terrorism Risk in the Rating Evaluation”; A.M. Best Comments on Enterprise Risk Management and Capital Models”; and “Risk Management and the Rating Process for Insurance Companies.” Methodologies can be found at http://www.ambest.com/ratings/methodology.