NU Online News Service, June 7, 2:39 p.m. EDT
A.M. Best Co. downgraded Columbus, Ohio-based State Auto Insurance Cos.' financial-strength rating to A from A-plus due to the impact of property catastrophe losses on the insurer.
Oldwick, N.J.-based Best says State Auto has seen deterioration in underwriting and operating earnings in recent years due to the frequency and severity of cat losses.
"State Auto's negative rating factors include its exposure to localized tornado/hail storms and hurricane activity," Best says in a statement. "These exposures historically have been mitigated through comprehensive reinsurance programs and available credit facilities, as well as underwriting initiatives aimed at reducing catastrophe exposures. However, the increased frequency and severity of storm losses in recent years has dampened State Auto's underwriting profitability and overall earnings."
Best notes that State Auto has implemented initiatives to improve underwriting results, including rate increases, reducing exposure, and implementing wind and hail deductibles, among other strategies.
In response, State Auto President, Chairman and CEO Bob Restrepo says in a statement that Best's decision "will not change our strategy and plans for the future. We will continue to implement initiatives to strengthen our underwriting profitability and financial strength and preserve our terrific reputation. At the same time, we will build upon our long-standing and profitable agency relationships, develop and deploy products and technology that make us a responsive partner, and ensure the quality claims and customer-service operations that will continue to distinguish State Auto as a superior regional agency company."
He notes strategies the company has taken to mitigate risks, but acknowledges they were not enough to offset "the dramatic turn in the weather and our long-standing concentration in states exposed to property losses from wind, hail and tornadoes."
For Best, Rstrepo says, "The real issue is the weather and our inability to absorb its impact and produce consistent underwriting profits."
He adds, "A.M. Best did note our strong risk-adjusted capitalization, long-standing regional market presence, well-established agency relationships and increasingly diversified product offerings. They recognize that the investments we're making in systems, stronger agency relationships, improved operational efficiencies, more sophisticated pricing models and improved risk management will contribute to our strong financial position and excellent financial strength rating."
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