Amica Mutual is based in Lincoln, Rhode Island and is a top insurer in Massachusetts
A.M. Best announced this week that it has downgraded the Financial Strength Rating (FSR) of the Amica Mutual Group, which includes the Amica Mutual Insurance Company, as well as its wholly owned subsidiary the Amica Property & Casualty Insurance Company. In addition to revising its outlook on the Long-Term ICR “to negative from stable” (the FSR outlook remains unchanged), the rating agency lowered the insurer’s Financial Strength Rating to A+ (Superior) from its previous A++ (Superior). As for the Long Term Issuer Credit Ratings, those ratings also were adjusted to “aa” from “aa+”,
AM Best’s reasoning behind its downgrading of Amica
According to A.M. Best, the Rhode Island direct writer’s deteriorating underwriting results in recent years coupled with rising losses on its auto insurance line of business were the two main factors affecting its decision. More importantly, A.M. Best noted that Amica’s net underwriting losses, which have reflected increasing loss ratios over the past few years, compare unfavorably vis-a-vis with Amica’s peer companies rated by A.M. Best.
A verbatim excerpt from A.M. Best’s announcement
The following excerpt was taken verbatim from the A.M. Best press release announcing the downgrade:
While Amica maintains strong risk-adjusted capitalization, the rating downgrades are related to deteriorating underwriting results in recent years, mainly driven by increased catastrophe losses in conjunction with elevated losses on the automobile insurance line of business, due primarily to increases in claims severity. The group is a direct writer of personal lines property/casualty products.
Amica’s net underwriting losses reflect the increasing loss ratio in recent years, which compares unfavorably with similarly A.M. Best-rated peer companies and companies in the private passenger standard auto and homeowners composite. Management has responded with rate increases, and coupled with a return to a more normalized level of loss activity, expects underwriting results to improve in the near future. Additionally, surplus growth has been tempered over the latest five-year period, primarily due to the payment of significant levels of policyholder dividends.
Amica’s results rely heavily on net investment income and realized capital gains, which have collectively contributed to positive operating cash flows in most years. In 2015, the group reported negative operating cash flow due to their higher-than-normal catastrophe experience; however, they were able to generate positive cash flows from operations in 2016. The ratings also reflect Amica’s strong, yet declining, level of risk-adjusted capitalization, reflective of a high quality investment portfolio and relatively low underwriting leverage, solid liquidity, generally favorable operating returns and national market presence and brand recognition, with a reputation for excellent customer service.
Amica Life’s ratings reflect the company’s strategic role within Amica Mutual, strong capitalization levels driven by profitable operations, absence of shareholder dividends and its ongoing initiatives to grow life insurance premium and strengthen its market penetration within Amica Mutual’s policyholder base. In addition to growing the business through the existing captive relationship, the company continues expansion efforts to external customers. Offsetting rating factors include challenges associated with asset-liability matching, reinvestment risk given the continued low interest rate environment, modest penetration of its parent’s large customer base and reduced earnings due to increased expenses associated with the company’s plan to expand outside of the captive property/casualty client base.”