A.M. Best Co. announced today its decision to downgrade the Andover Companies Pool and its members outlook from stable to negative and affirmed the issuer credit rating of “aa.” A.M. Best did not revise the financial strength rating of the companies, however, which remains at A+ (Superior). The outlook for the FSR is also stable.
The Andover Companies offers its insurance programs through three distinct companies which sell its policies exclusively through independent agents. All three companies, however, are supervised and managed by the home office in Andover, MA. Those companies include Merrimack Mutual Fire Insurance Company, incorporated in 1828, the majority-owned susidiary Bay State Insurance Company, incorporated in 1955 as a stock company and affiliate Cambridge Mutual Fire Insurance Company, incorporated in 1833 and acquired by Merrimack Mutual in 1913.
In announcing its decision, A.M. Best explained that the revised ICR outlook reflects its concerns
…regarding the the need for Andover’s management to more fully demonstrate an appropriate level of catastrophe management practices that are commensurate with its property product focus and geographic concentration as well as reflective of its Superior rating level. While Andover’s historical results are favorable, they have not been tested from a catastrophe exposure perspective. Further discussions with management are planned in order to assess the adequacy of the pool’s ongoing catastrophe risk management practices.
The ratings of Andover recognize its sold risk-adjusted capitalization, strong operating performance and long-standing market presence that have established it as a leading homeowner’s writer in Massachusetts.
The positive rating factors are derived from Andover’s conservative underwriting and investment leverage position and the generally favorable loss reserve development trends in its core book of business.
Partly offsetting these positive rating factors is Andover’s property predominant focus and geographic concentration in the Northeast that makes it susceptible to sever weather-related events and catastrophes, regulatory decisions and competitive market conditions.
In order to arrive at its decision, AM Best employs a myriad of rating criteria in addition to its Credit Rating Methodology for Global Life and Non-Life Insurance. Click here to review A.M. Best’s Rating Criteria.