A.M. Best Upgrades Ratings of Forestry Mutual Insurance Company [Manufacturing Close – Up]

A.M. Best Co. has upgraded the financial strength rating to B (Fair) from B- (Fair) and issuer credit rating to "bb" from "bb-" of Forestry Mutual Insurance Company (FMIC) (Raleigh, NC).

The outlook for both ratings is stable.

The rating actions reflect FMIC's increasing surplus and positive operating results as well as its expertise in loss control and safety procedures, which are needed for the higher hazard risks the company insures. In addition, FMIC has benefitted from geographic diversification into neighboring states and its zero tolerance policy for failure to comply with safety requirements. The stable outlook reflects A.M. Best's view that FMIC's operating performance and risk-adjusted capitalization will continue to improve in the near term.

These positive rating factors are somewhat offset by FMIC's limited business profile as well as by market and economic conditions, which create unique challenges for a single line niche writer of workers' compensation insurance for forestry and logging related risks. In addition, while FMIC's performance has been negatively affected by an increase in large claims, overall frequency levels significantly have improved in recent years. With a lowering of FMIC's retention levels on its reinsurance program, the company is better protected from large losses; and thus, reduced volatility in earnings is expected in the future. Also mitigating the increase in larger claims is the effectiveness of FMIC's safety program and strong reserving practices.

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"; and "The Treatment of Terrorism Risk in the Rating Evaluation." 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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