Aug 3, 2012, 3:34pm

A.M. Best Co. has downgraded the financial strength rating (FSR) to B+ (Good) from B++ (Good) and issuer credit rating to “bbb-” from “bbb” of German Mutual Insurance Company (Napoleon, OH). The outlook for both ratings is negative.

The rating actions are based on German Mutual’s declining risk-adjusted capitalization, significant deterioration in underwriting and operating results in recent years and its continuing challenges to improve operating profitability. In 2011, the company’s significant decline in surplus was driven by catastrophic wind events as well as frequent and severe fire losses. In 2012, a major wind storm caused significant losses and is estimated to be the largest in German Mutual’s recent history with a gross loss estimate of approximately $15.0 million.

Continuation of the negative outlook reflects German Mutual’s trend of weak operating performance, dependence on reinsurance and the challenges to improve operating results in the near term.

Positive rating factors include German Mutual’s long-standing market presence and agency relationships that have resulted in excellent business persistency in its core markets.

Factors that could trigger further negative rating actions include continued deterioration in German Mutual’s underwriting and operating results and further decline in its risk-adjusted capitalization.

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: “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best Ratings”; and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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