A.M. Best has upgraded the financial strength rating to A-
(Excellent) from B++ (Good) and issuer credit rating to "a-" from "bbb+"
of Mennonite Mutual Insurance Company (Mennonite Mutual)
(headquartered in Orrville, OH). The outlook for both ratings has been
revised to stable from positive.
The ratings upgrades are driven by Mennonite Mutual's favorable
underwriting results, solid operating earnings and consistent surplus
growth over the previous five-year period.
The ratings reflect Mennonite Mutual's strong risk-adjusted
capitalization, profitable operating results and long-standing local
market presence. The company's capital position is driven by its modest
underwriting leverage, management's conservative operating strategies
and prudent catastrophe risk management. Mennonite Mutual's five-year
operating income has been derived from profitable underwriting results
in most years, combined with a steady stream of net investment income.
Despite increased weather-related claims, severe fire losses and
challenging market conditions, the company's operating results have
remained positive. The ratings further consider management's initiatives
to sustain its profitability trend through underwriting and pricing
discipline, a reduction in property exposures and commitment to
agriculture and faith-based markets. Mennonite Mutual's operating
perfomance further benefits from its strong agency relationships.
These strengths are partially offset by the company's geographic risk
concentration in Ohio and elevated underwriting expense ratio. As a
predominantly single-state writer with a property book of business,
Mennonite Mutual's underwriting results are subject to localized
weather-related losses and changes in the legal and legislative climate.
The company also maintains an underwriting expense ratio disadvantage
relative to industry norms, mainly due to its elevated commission
structure. However, Mennonite Mutual's underlying book of business
continues to perform well, as reflected by its five-year pure loss
ratio, which outperforms the personal property industry composite. In
addition, there is some execution risk associated with the company's
affiliation agreement and 100% quota share of Mennonite Mutual Aid
Society (MMAS) business, which was effective Jan. 1, 2013. However,
Mennonite Mutual has re-underwritten this book of business and MMAS has
been fully integrated into its operations.
Mennonite Mutual is well positioned at its current rating level.
Positive ratings actions could occur if the company maintains strong
risk-adjusted capitalization and generates consistently above-average
operating results. Key factors that could trigger negative rating
actions include prolonged deterioration of underwriting and operating
results, particularly if the resulting performance is below the peer
group average with a significant erosion of risk-adjusted capitalization.
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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