A.M. Best Revises Outlook to Negative From Stable for Columbia Mutual Insurance Company and Its Insu

A.M. Best Revises Outlook to Negative From Stable for Columbia Mutual Insurance Company and Its Insurance Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" of Columbia Mutual Insurance Company (Columbia) (headquartered in Columbia, MO) andits insurance subsidiaries. (See below for a detailed listing of the companies.)


The negative outlook is based on Columbia's significant operating losses in recent years that led to a sizeable decline in its policyholders' surplus, stemming from catastrophe weather related losses and competitive market pressures in its primary operating territory.

The affirmation of the ratings is based on Columbia's solid risk-adjusted capitalization, conservative operating strategy and long-standing market presence. Columbia's solid risk-adjusted capitalization is derived from its moderate underwriting leverage and adequate balance sheet liquidity, which are partially offset by its moderately adverse loss reserve development in recent years and above-average common stock leverage.

Columbia reported significant underwriting losses over the previous five-year period, driven by widespread storm losses in the Midwest that were partially mitigated by solid, albeit gradually declining, net investment income. While Columbia has expanded its marketing territory in recent years, management has undertaken numerous corrective initiatives to improve underwriting results. Specific actions include numerous commercial and personal lines rate adjustments, increased use of loss control, more accurate insurance-to-value efforts and utilization of improved underwriting tools. Additional initiatives include the run-off of the homeowners' and dwelling fire lines of business, the cancellation of underperforming agencies, property deductible increases and improved product and geographic diversification. Columbia also has implemented an improved enterprise risk management framework, which places greater emphasis on its risk management culture, corporate governance structure and risk assessment programs.

Columbia's business concentration in the Midwest exposes its earnings and surplus to catastrophe losses stemming from wind, hail and tornadoes, as well as the earthquakes on the New Madrid fault line. This was particularly evident in 2011 and 2012, when Columbia reported significant underwriting losses, driven by unprecedented wind, hail and tornado losses. These underwriting losses resulted in large operating losses, which led to a $57.6 million or 27% decline in policyholders' surplus over the two-year period. However, management partially mitigates these exposures through quality reinsurance, prudent risk management strategies and geographic spread of risk. In addition, through a comprehensive reinsurance program and underwriting actions, the net probable maximum loss (PML) for a 100-year hurricane (Columbia's largest exposure), as depicted in a PML analysis, has been reduced to a manageable level.

As Columbia's outlook is negative, a ratings downgrade could occur if there is a continuation of the deterioration in operating results and/or risk-adjusted capitalization that has occurred in recent years, driven by significant storm losses.

The FSR of A- (Excellent) and ICRs of "a-" have been affirmed for Columbia Mutual Insurance Company and its following insurance subsidiaries:

  • Columbia National Insurance Company
  • Association Casualty Insurance Company
  • Georgia Casualty & Surety Company
  • Citizens Mutual 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: "Catastrophe Analysis in A.M. Best Ratings"; "Equity Credit for Hybrid Securities"; "Rating Members of Insurance Groups"; "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 www.ambest.com/ratings/methodology.

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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.



A.M. Best Co.
Kenneth Tappen, 908-439-2200, ext. 5248
Senior Financial Analyst
kenneth.tappen@ambest.com
or
Joseph Burtone, 908-439-2200, ext. 5125
Assistant Vice President
joseph.burtone@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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