On Tuesday, A.M. Best Co. said that while the rating agency has affirmed the “A-” financial strength rating of Merchants Mutual Insurance Company and its subsidiaries, it has also revised the outlook to negative from stable.
The outlook change also applies to the issuer credit ratings of “a-” the members of the group, which also includes Merchants National Insurance Company and Merchants Preferred Insurance Company.
Supporting the ratings affirmation, Best pointed to the risk-adjusted capitalization maintained by the Merchants Insurance Group, its historically profitable underwriting and operating results and regional market presence.
Offsetting these positive rating factors, however, the rating agency cited the group’s recent underwriting and operating results, which have declined from historical levels as a result of weather-related losses and competitive market conditions.
Best noted in the rating announcement that Merchant management has undertaken a number of actions to improve results, including expanded use of multivariate rating technology, underwriting actions to reduce exposure to weather-related losses and pricing actions.
“While some improvement was noted in 2012, the ultimate outcome of these actions has yet to be demonstrated,” Best said. “The outlook reflects this uncertainty, as well as the increased variability in the group’s performance and risk-adjusted capitalization in recent years.”
Source: A.M. Best