S&P Downgrades Harleysville Group Ratings

S&P Downgrades Harleysville Group Ratings

NU Online News Service, Jan. 2, 2:05 p.m. EST?Standard & Poor's Ratings Services has lowered its counterparty-credit and senior-debt ratings for Harleysville Group Inc. to "triple-B minus" from "triple-B," citing concerns over the company's poor underwriting results and business position.[@@]

The Harleysville Group ratings now have been removed from CreditWatch, but the ratings outlook is "negative," the New York-based S&P added.

On Harleysville Group's underwriting results, S&P indicated its concern for the company's adverse loss-reserve development for 1997-2001 accident years, which totaled $76.8 million, pretax, and earned a 119 percent combined ratio during 2003's first three quarters.

The ratings firm called Harleysville's weak underwriting results "particularly troubling" because over the last three years the industry has experienced strong rate hikes.

S&P also forecast Harleysville "will continue to struggle" and that the insurer is expected to have a combined ratio of more than 100 percent at year-end 2004.

Additionally, it's possible that further reserve adjustment to prior accident years will take place, as Harleysville continues to recast its claims divisions and identify weakness in its case reserves. S&P added that Harleysville would continue to see challenges in maintaining its top line and defending its market position, as rate hikes begin to taper off and reserves possibly increase.

S&P also predicted that Harleysville will continue to face difficulties as it competes with local, regional and national insurance companies. "As a middle-tier insurer focusing on main street business with 50 or fewer employees, the company may struggle to maintain its market share," the ratings firm observed.

Furthermore, S&P is worried that the company will lack clear and strong leadership following the departure of its Chief Executive Officer Walter Bateman.

S&P observed that Mr. Bateman officially retired as of Dec. 31, 2003, as announced by Harleysville board directors last September. But the ratings firm pointed out there is still no obvious replacement for Mr. Bateman.

"Succession planning is currently under way by the board of directors," S&P said. "However, for an undefined period Harleysville's senior management team will report to the board of directors."