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A.M. Best Downgrades Ratings of State Automobile Mutual Insurance Company and Its Operating Subsidiaries | Business Wire


OLDWICK, N.J.–([NASDAQ:STFC])–A.M. Best has downgraded the financial strength rating (FSR) to

A- (Excellent) from A (Excellent) and the issuer credit ratings (ICR) to

“a-” from “a” of State Automobile Mutual insurance Company (State

Auto) and its operating subsidiaries. Concurrently, A.M. Best has

downgraded the ICR to “bbb-” from “bbb” of State Auto’s intermediate

holding company, State Auto Financial Corporation (STFC)

[NASDAQ:STFC]. The outlook for all ratings has been revised to stable

from negative. All the above companies are headquartered in Columbus,

OH. (See below for a detailed listing of the companies.)

The ratings downgrade is based on State Auto’s unfavourable five-year

underwriting and operating results relative to the private passenger

standard auto and homeowners composite, the deterioration of 2014

results due to adverse development on the run-off of its large

commercial trucking and commercial restaurant specialty lines programs,

and the potential for 2015 results to be negatively impacted by

additional adverse development on these programs.

State Auto’s positive rating attributes reflect its strong risk-adjusted

capitalisation, long-standing regional market presence, well-established

agency relationships, solid brand name recognition and diversified

product offerings. State Auto’s capital position is derived from its

sound overall liquidity position and manageable catastrophe exposure,

partially offset by above-average underwriting and common stock

leverage. State Auto also benefits from its software technology, which

further enhances and cultivates agency relationships, while improving

overall operating efficiencies. The ratings also reflect the financial

flexibility and access to capital through State Auto Financial

Corporation, State Auto’s publicly traded intermediate holding company.

State Auto has implemented numerous strategic initiatives in recent

years to improve underwriting results. These initiatives include rate

increases in a number of states and lines of business, a reduction of

property exposures in catastrophe-exposed areas, the implementation of

increased property wind and hail deductibles, the implementation of an

enhanced homeowner by-peril rating program, stepped up

insurance-to-value efforts, the increased use of property catastrophe

reinsurance and agency management actions. These strategic initiatives

and reduced storm activity resulted in improved operating earnings and

solid surplus growth in 2013, although underwriting results were

tempered by ceded premiums from its homeowners’ quota share reinsurance

contract (expired year-end 2014) and the run-off of business in its

specialty lines segment.

State Auto’s negative rating factors include its exposure to localized

tornado/hail storms and hurricane activity. The increased frequency and

severity of storm losses earlier in the previous five-year period

adversely impacted State Auto’s underwriting profitability, overall

earnings and surplus position. However, these exposures are mitigated

through a comprehensive reinsurance program and available credit

facilities, as well as underwriting initiatives aimed at reducing

catastrophe exposures. In 2012, State Auto also experienced

deterioration in its specialty lines segment, driven by increased losses

on its large commercial trucking and commercial restaurant programs.

These policies were placed into run-off during 2012, with the run-off of

premiums completed by year-end 2013. However, State Auto reported an

additional $140 million of adverse development on these claims in 2014,

which resulted in significant underwriting and operating losses and a

moderate decline in surplus at year-end 2014.

State Auto’s management has taken significant actions to prevent

additional adverse loss reserve development on its large commercial

trucking and commercial restaurant programs, which include bringing

management on these claims in-house, performing an internal claims audit

and purchasing adverse development reinsurance on its commercial

restaurant program with $40 million of coverage above year-end 2014

carried reserves. Lastly, State Auto’s underwriting results remain

pressured by its above-average underwriting expense ratio.

Negative rating actions could occur if there is a continuation of

operating losses and/or surplus deterioration that took place over the

previous five-year period, potentially driven by storm losses, adverse

loss reserve development or other causes. A sustained trend of favourable

underwriting and operating results relative to peers and surplus growth

would be required for positive rating movement.

The FSR has been downgraded to A- (Excellent) from A (Excellent) and the

ICRs have been downgraded to “a-” from “a” for State Automobile

Mutual Insurance Company and its following operating subsidiaries:

  • State Auto Property and Casualty Insurance Company

  • Milbank Insurance Company

  • State Auto Insurance Company of Ohio

  • Patrons Mutual Insurance Company of Connecticut

  • Meridian Security Insurance Company

  • State Auto Insurance Company of Wisconsin

  • Rockhill Insurance Company

  • Plaza Insurance Company

  • American Compensation Insurance Company

  • Bloomington Compensation 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. Best’s Credit Rating Methodology can be

found at [NASDAQ:STFC].

Key insurance criteria reports utilized:

  • Catastrophe Analysis in A.M. Best Ratings

  • Insurance Holding Company and Debt Ratings

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • The Treatment of Terrorism Risk in the Rating Evaluation

  • Understanding BCAR for Property/Casualty Insurers

This press release relates to rating(s) that have been published on

A.M. Best’s website. For all rating information relating to the

release and pertinent disclosures, including details of the office

responsible for issuing each of the individual ratings referenced in

this release, please visit A.M. Best’s [NASDAQ:STFC].

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 © 2015 by A.M. Best Company, Inc. ALL RIGHTS


A.M. Best Company
Kenneth Tappen, 908-439-2200, ext. 5248
Senior Financial Analyst
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
Joseph Burtone, 908-439-2200, ext. 5125
Assistant Vice President
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations

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