A.M. Best Co. has revised the outlook to positive from stable and
affirmed the issuer credit ratings (ICR) of “a” of Electric Insurance
Company (Electric) (Beverly, MA) and its wholly owned subsidiary, Electric
Insurance Ireland, Ltd (EIIL) (Dublin, Ireland). A.M. Best also has
affirmed the financial strength rating (FSR) of A (Excellent) of
Electric and EIIL. The outlook for the FSR is stable.
The revised outlook for Electric’s ICR is due to its improving
risk-adjusted capitalization and continued operating profitability. The
ratings take into consideration Electric’s sound geographic and product
line diversification, the reduced risk associated with retrospectively
rated commercial policies, value-added commercial insurance services
provided to General Electric Company (GE), as well as Electric’s
strategic importance to GE.
The ratings for Electric are afforded to EIIL primarily due to its
affiliation with Electric, its integration into Electric’s business
plan, as well as its supportive capitalization, profitable operating
performance and strategic role in providing commercial lines products to
GE in the European Union.
Partially offsetting these positive rating factors are the limitations
of Electric and EIIL’s commercial lines business to one policyholder
(GE), a downturn in underwriting performance of the homeowners’ line in
recent years (due primarily to severe weather and fire losses) and
significant exposure to catastrophic loss from a potential terrorist
attack, mainly within the workers’ compensation line of business should
the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) not be
extended beyond 2014. These concerns are partially mitigated by actions
presently being taken by Electric to improve personal lines underwriting
as well as its efforts to devise a comprehensive plan to mitigate its
exposure to the potential loss of TRIPRA protection. However, although
surplus and risk-adjusted capitalization could be materially depleted
from a terrorist attack without TRIPRA protection, A.M. Best believes
that capitalization would continue to support Electric’s ratings based
on its modeling and current reinsurance program.
Positive rating triggers that could lead to an upgrading of Electric and
EIIL’s ICRs include continued profitability and capital appreciation, as
well as development of a comprehensive terrorism risk mitigation plan in
the event that TRIPRA expires at the end of 2014, or if TRIPRA is
renewed beyond 2014 for an extended period of time. The ratings and
outlook could come under pressure if there were a material weakening in
the companies’ capitalization, their net exposure to loss from a
terrorist attack were to significantly increase or there were a
reduction in the business profile or their strategic importance to GE.
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 www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative
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