A.M. Best Upgrades Ratings of Fremont Insurance Company and Affirms Ratings of The Auto Club Group and Its Property/Casualty Members

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and issuer credit rating (ICR) to “a” from “a-” of Fremont Insurance Company (Fremont) (Fremont, MI). In addition, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of “a” of The Auto Club Group (Dearborn, MI) and its property/casualty members. The outlook for all ratings is negative. (See below for a detailed listing of the companies.)

The upgrading of the ratings for Fremont is based upon it becoming part of The Auto Club Group’s existing reinsurance pooling agreement as of January 1, 2012, following its acquisition by The Auto Club Group on August 1, 2011.

The negative outlook is based upon the deterioration in The Auto Club Group’s operating earnings in recent years, which was driven by unfavorable underwriting results caused by homeowners’ weather-related losses and medical inflation on auto personal injury claims.

The Auto Club Group’s ratings reflect its strong risk-adjusted capitalization, modest five-year operating performance and well-established position as a personal lines market leader in Michigan, as well as the benefits derived from offering insurance products to AAA members. The group’s strong risk-adjusted capitalization is driven by its moderate underwriting leverage, partially offset by its above average non-affiliated investment leverage and moderate gross and net catastrophe exposure. The Auto Club Group has produced modest five-year operating earnings, driven by solid investment income, partially offset by underwriting losses for the same period.

These positive attributes are derived from The Auto Club Group’s AAA affiliation, through which it writes a controlled book of business with a select class of policyholders. The success of this book is reflected in its large market share in Michigan. Management remains focused on improving its competitive position in Michigan, and by acquiring MEEMIC Insurance Company in 2009 and Fremont in 2011, it has further diversified its distribution channels and targeted audience in Michigan. Recently, The Auto Club Group also implemented numerous strategic initiatives to improve underwriting performance, which included private passenger auto and homeowners’ rate adjustments in states where they were indicated, increasing product and underwriting sophistication to improve profitability and its competitive position, as well as continued rollover of a new claims system.

Partially offsetting these strengths is The Auto Club Group’s deterioration in operating results in recent years and its concentration of business in one state, which exposes it to regulatory and legal changes, as well as significant price competition in its core markets. The deterioration in operating results in recent years was driven by increased underwriting losses and lower investment income, as well as the group’s exposure to regulatory and legal changes in Michigan.

The deterioration in underwriting results is reflective of a higher loss and loss adjustment expense ratio, which is driven by an increased frequency and severity of homeowners’ weather losses throughout the Midwest, and greater private passenger auto personal injury loss cost severities primarily due to medical inflation and unfavorable loss experience for non-Michigan business. In addition, before cost reduction efforts took effect in 2009, The Auto Club Group had an above average underwriting expense ratio, reflective of significant price competition, system development and implementation costs for new underwriting and policy administration systems, as well as higher advertising costs as competition increased.

As The Auto Club Group currently maintains a negative rating outlook, negative rating actions could occur from the continuation of adverse operating performance that has been reported in recent years, driven by severe weather-related losses and unfavorable automobile liability loss experience.

The FSR of A (Excellent) and ICRs of “a” have been affirmed for The Auto Club Group and its following members:

• Auto Club Insurance Association
• Auto Club Group Insurance Company
• MemberSelect Insurance Company
• Auto Club Property-Casualty Insurance Company
• MEEMIC Insurance Company

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: “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “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 Company, Inc.Kenneth TappenSenior Financial Analyst
908--439-2200, ext. 5248
[email protected]
orJoseph BurtoneAssistant Vice President
908-439-2200, ext. 5125
[email protected]
orRachelle MorrowSenior Manager, Public Relations
908-439-2200, ext. 5378
[email protected]
orJim PeavyAssistant Vice President, Public Relations
908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Company, Inc.