A.M. Best Co. has downgraded the financial strength rating (FSR)
to A- (Excellent) from A (Excellent) and the issuer credit ratings (ICR)
to “a-” from “a” of Auto Club Insurance Association (ACIA)
(headquartered in Dearborn, MI) and its insurance subsidiaries.
The outlook for all ratings has been revised to stable from negative.
(See below for a detailed listing of the companies.)
The downgrading of the ratings is based on the deterioration in ACIA’s
underwriting results and operating earnings, which has led to a decline
in policyholders’ surplus in recent years. The deterioration in
underwriting results was driven by unfavorable loss experience for
private passenger auto liability and non-Michigan business, as well as
an increased frequency and severity of homeowner weather losses. In
addition, the group maintains above-average non-affiliated investment
leverage, driven by its investment holdings in unaffiliated common stock
and bank loans, which equate to approximately 30% of surplus, and its
non-investment grade bond holdings, which equate to approximately 10% of
ACIA's ratings and outlook reflect its strong risk-adjusted
capitalization and well-established position as a personal lines market
leader in Michigan, as well as the benefits derived from offering
insurance products to American Automobile Association (AAA) members. The
group's strong risk-adjusted capitalization is driven by its moderate
underwriting leverage, partially offset by its above average
non-affiliated investment leverage and moderate gross and net
catastrophe exposure. These positive attributes are derived from ACIA's
AAA affiliation, through which it writes a controlled book of business
with a select class of policyholders. Management remains focused on
improving its competitive position in Michigan, and by acquiring Meemic
Insurance Company in 2009 and Fremont Insurance Company in
2011, it has further diversified its distribution channels and targeted
audience in Michigan.
ACIA has recently implemented numerous strategic initiatives to improve
underwriting performance, which included private passenger auto and
homeowner rate adjustments in states where they were indicated;
increased pricing sophistication and product enhancements to improve
profitability and competitive position; refinements to underwriting
guidelines and modifications to its reinsurance program.
Additional negative rating actions could occur from continued
deterioration in ACIA’s operating performance and policyholders'
surplus, resulting in a material decline in risk-adjusted capitalization.
The FSR has been downgraded to A- (Excellent) from A (Excellent) and
ICRs to “a-” from “a” for Auto Club Insurance Association and its
following insurance subsidiaries:
MemberSelect Insurance Company
Auto Club Group Insurance Company
Meemic Insurance Company
Fremont Insurance Company
Auto Club Property/Casualty Insurance Company
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: “Rating
Members of Insurance Groups”; “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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