Regional Mutuals Can Get Upgraded

The survey did not find a bias, said Mr. Dykstra, but he could understand why there was that feeling. In making a comparison between mutuals and the bigger publicly traded carriers, the mutuals felt they were unfairly being judged to the same performance level.

A report on the survey results outlined how the parties could improve communications with rating agencies (see NU, Oct. 22, 2000). NAMIC plans a follow-up survey in the fall to see where things stand today, Mr. Dykstra said.

One mutual that feels it has been heard, Acuity in Sheboygan, Wisc., is in the midst of celebrating its recent upgrade by Oldwick, N.J.-based A.M. Best to "A-plus." The companys president and chief executive officer, Benjamin M. Salzmann, called the action "a huge affirmation" of the rating services work.

"There can be a success story in the insurance industry, and if you are, A.M. Best will find you," he said.

In the year ending 2002, Acuity reported net income of $46.4 million on underwriting income of $462 million. The companys combined ratio stood at 90.9 percent. According to the companys own tracking figures of the top 50 national carriers, over the past three years, only Progressive had a combined ratio below 100, standing at 99.7. Acuity, by comparison, doing business in 11 states, had a combined ratio of 99.2.

"Numbers are great, but how are you positioning yourself for the future?" Mr. Salzmann asked. There are three areas of the business the company has concentrated on to position itself for the future: technology, underwriting and communication.

Mr. Salzmann said Acuity has embraced technology totally. In personal lines, the company is totally paperless. On the commercial side, the carrier has just completed updates to no longer produce new paper.

The efficiency of technology has spread to claims. Sheboygan is the companys only claim office. All claims work is done through satellite hook-up, the Internet or by plugging electronic notebooks into cell phones.

The biggest testament to the companys use of technology, Mr. Salzmann said, is the fact that Acuity won eight awards during the recent ACORD conference in May. Technology has allowed for improved underwriting decisions, making for efficiency and happy clients. Mr. Salzmann explained that 97 percent of personal lines customers get answers on their policy applications in 24 hours. In commercial lines, the turnaround is four-to-seven days.

The company also insists that executives go out and meet with their independent agent distribution force and make clear what the underwriting appetite is.

"If you go out and tell agents what you are good at writing, they send you that business. And since you are good at it, you make money doing it," Mr. Salzmann said.

A strong emphasis on underwriting has been a mainstay. The highest level that Acuitys combined ratio reached during the 1990s soft market was 101, and the company is on track to end 2003 with a combined ratio of 87.9, he said.

"I mock this latest craze [among carriers] that, Oh my God, insurance is about underwriting. Were going to be serious about underwriting," he said. "Youre too late. You should have been serious about underwriting during the soft market."

In general, says Michael A. Cohen, vice president at A.M. Best, "upgrades are not the exception, but they are not common."

For mutuals, Mr. Cohen said one positive is that they are operating under less pressure in some respects than their publicly traded counterparts who have to deal with the stock market. "Ive seen a number of mutuals that have gotten quite a bit of distribution growth due to this issue," he said, suggesting that agents dont want to deal with the demands of cost reductions and quarter-by-quarter management decisions that go "against the grain of how they like to conduct business."

Stephanie Eakins, a financial analyst for Weiss Ratings in Palm Beach Gardens, Fla., said its rating of "B" is on par with Bests rating of Acuity. "They have shown consistent growth at a good pace," she said. "Their asset and capital premium growth are in line with their capital growth."

Weiss rates 441 mutual companies and 1,700 stock companies. When it comes to mutuals, she pointed out, the ratings firm has not seen any trends. There may be a feeling among mutuals that they are getting the "short end of the stick, but they are often more consistent and conservative. We prefer that," she said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.