AM Best Revises Outlooks to Negative for Members of Donegal Insurance Group and Donegal Group Inc.
March 12 2019 - 10:34AM
Business Wire
AM Best has revised the outlooks to negative from stable
and affirmed the Financial Strength Rating (FSR) of A (Excellent)
and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of
members of the Donegal Insurance Group (Donegal Group).
Concurrently, AM Best has revised the outlook to negative from
stable and affirmed the Long-Term ICR of “bbb” of the publicly
traded holding company, Donegal Group Inc. (Delaware) [NASDAQ:
DGICA and DGICB]. (See below for a detailed listing of the member
companies.)
The Credit Ratings (ratings) reflect Donegal Group’s balance
sheet strength, which AM Best categorizes as very strong, as well
as its adequate operating performance, neutral business profile and
appropriate enterprise risk management (ERM).
The revised outlooks to negative largely reflect the decline in
Donegal Group’s operating performance in the most recent years
(2017 and 2018), which has placed pressure on AM Best’s current
assessment of adequate. While the operating performance has been
impacted by above-average weather-related losses, the negative
outlooks also consider the moderate adverse loss reserving trends
and the slight decline in risk-adjusted capitalization. Donegal
Group has implemented a number of initiatives to help improve
underwriting performance, including significant rate actions, the
transfer of unprofitable accounts and investing in new
technology.
Donegal Group’s capital assessment reflects its Best’s Capital
Adequacy Ratio (BCAR), which AM Best categorizes as strongest,
sound liquidity position, and conservative investment portfolio,
which are offset partially by increasing underwriting leverage,
moderately adverse loss reserve development, and constrained
surplus growth over the most recent five-year period. Management
attributes the reserve development to increased frequency of
severity of losses in the auto segment, as well as the changing
trends in the reporting of casualty loss data and a deceleration in
claim closure rates. Although the individual members within Donegal
Group play a specific role in the organization’s overall business
plan, and their operating performances may vary, each contributes
favorably to the group’s risk-adjusted capitalization. In addition,
each member supports the corporate business strategy and benefits
from shared senior management, intercompany reinsurance and the
added financial flexibility of Donegal Group Inc. to raise capital
through debt or equity offerings during favorable investment
markets.
Donegal Group’s neutral business profile includes geographic and
product line diversification, effective use of technology in the
independent agency distribution channel, and a history of
successful expansion through strategic acquisitions and
affiliations.
Appropriate ERM is demonstrated through a formal risk management
process, which provides assurances that the organization’s key
compliance, financial, strategic and operational risks are
addressed in meeting organizational objectives. Additionally,
Donegal Group purchases various excess of loss and per risk
reinsurance treaties from high quality reinsurers to protect
surplus, reduce volatility and increase capacity. In 2019, Donegal
Group made significant changes to its reinsurance program, which AM
Best expects to benefit operating results going forward, dependent
upon the incidence of large loss activity and the occurrence of
catastrophe events.
The affirmation of the Long-Term ICR of Donegal Group Inc.
recognizes the overall financial strength of its property/casualty
insurance operation, its moderate amount of financial leverage and
the subordination of its creditors to the insurance companies’
policyholders.
The FSR of A (Excellent) and the Long Term ICRs of “a” have been
affirmed, with outlooks revised to negative from stable for the
following members of Donegal Insurance Group:
- Atlantic States Insurance Company
- Donegal Mutual Insurance Company
- Le Mars Insurance Company
- Michigan Insurance Company
- Mountain States Commercial Insurance
Company
- Mountain States Indemnity Company
- Peninsula Indemnity Company
- Peninsula Insurance Company
- Sheboygan Falls Insurance Company
- Southern Insurance Company of
Virginia
- Southern Mutual Insurance Company
This press release relates to Credit Ratings that have been
published on AM Best’s website. For all rating information relating
to the release and pertinent disclosures, including details of the
office responsible for issuing each of the individual ratings
referenced in this release, please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please
view Understanding Best’s Credit Ratings. For
information on the proper media use of Best’s Credit Ratings and AM
Best press releases, please view Guide for Media - Proper
Use of Best’s Credit Ratings and AM Best Rating Action Press
Releases.
AM Best is a global rating agency and information provider
with a unique focus on the insurance industry. Visit
www.ambest.com for more information.
Copyright © 2019 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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Kim MucciaSenior Financial Analyst+1 908 439
2200, ext. 5731kimberly.muccia@ambest.com
Christopher SharkeyManager, Public Relations+1
908 439 2200, ext. 5159christopher.sharkey@ambest.com
Brian O’LarteDirector+1 908 439 2200, ext.
5138brian.o'larte@ambest.com
Jim PeavyDirector, Public Relations+1 908 439
2200, ext. 5644james.peavy@ambest.com
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