A.M. Best Co. has revised the outlook to stable from negative and
affirmed the financial strength ratings of A- (Excellent) and issuer
credit ratings of "a-" of Cumberland Mutual Fire Insurance Company
(Cumberland Mutual) and its subsidiary, Cumberland Insurance Company,
Inc. (CIC) (both headquartered in Bridgeton, NJ).
The revised outlook reflects Cumberland Mutual's and CIC's strong
risk-adjusted capitalization and recently improved operating performance
due in large part to management's strategic initiatives.
Cumberland Mutual's strong capital position is primarily derived from
its moderate underwriting leverage, which is slightly higher than
industry norms. Cumberland Mutual maintains its established market
presence and long-standing relationships through its independent agency
force. In an effort to improve underwriting results, Cumberland Mutual
has implemented numerous strategic initiatives to update its technology
and processes. These strategic initiatives include rate adjustments,
deleveraging unprofitable premium, enhanced pricing tools, stricter
underwriting guidelines and improved rate adequacy on coastal accounts.
Additionally, Cumberland Mutual has continued its strategy of reducing
its geographic concentration through the expansion of its core products
outside of New Jersey. A comprehensive reinsurance program reduces
Cumberland Mutual's net exposure to a catastrophe event to a manageable
level. These strategic initiatives and less severe weather have resulted
in improved underwriting results, operating earnings and surplus
position in 2013.
These positive rating factors are partially offset by umberland
Mutual's unfavorable five-year operating performance and surplus
deterioration, which were driven by significant underwriting losses and
gradually declining net investment income. The underwriting losses were
primarily driven by an increased frequency and severity of storm losses,
greater fire loss activity, adverse loss reserve development on its
homeowners and commercial multi-peril lines of business, higher
reinsurance costs and increased underwriting expenses associated with
product and systems development. Due to its property concentration in
the Northeast, Cumberland Mutual is exposed to weather-related losses,
as well as adverse judicial and regulatory actions.
CIC's excellent capital position is primarily derived from its modest
underwriting leverage and favorable loss reserve development. CIC's
five-year pre-tax returns on revenue and equity also compare favorably
to industry norms, driven by profitable five-year underwriting results.
Furthermore, the ratings reflect the financial and operating support and
common management provided by Cumberland Mutual.
Partially offsetting these positive rating factors is CIC's declining
premium volume and geographic concentration within New Jersey. The
company's net premiums earned declined moderately over the previous
five-year period, reflective of significant audit returns due to
economic conditions, as well as state-mandated workers' compensation
rate reductions. In addition, CIC's geographic concentration within New
Jersey exposes it to competitive market conditions, as well as adverse
judicial and regulatory actions.
Negative rating actions could occur on Cumberland Mutual's ratings from
a continuation of its adverse operating performance and/or surplus
deterioration reported over the previous five-year period, driven by
severe weather-related losses.
Negative rating actions could occur on CIC's ratings from unfavorable
operating performance and/or surplus deterioration, potentially driven
by adverse development on its workers' compensation line of business
and/or a downgrading of the ratings of Cumberland Mutual.
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
insurance rating and information source. For more information, visit www.ambest.com.
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