A.M. Best Revises Outlook to Negative from Stable for Mercer Insurance Group and Its Members
June 18 2009 - 2:30PM
Business Wire
A.M. Best Co. has revised the outlook to negative from
stable and affirmed the financial strength rating of A (Excellent)
and issuer credit ratings (ICR) of �a� of Mercer Insurance
Group (Mercer) (Pennington, NJ). The ratings apply to the
following four inter-company reinsurance pool members: Mercer
Insurance Company (Lock Haven, PA), Mercer Insurance Company
of New Jersey, Inc. (Pennington, NJ), Franklin Insurance
Company (Lock Haven, PA) and Financial Pacific Insurance
Company (FPIC) (Rocklin, CA). Concurrently, A.M. Best has
revised the outlook to negative from stable and affirmed the ICR
�bbb� of Mercer Insurance Group, Inc (Mercer, Inc.)
(headquartered in New Jersey).
The revised outlook reflects the group�s diminished level of
capitalization in 2008 and A.M. Best�s viewpoint that management
will be pressed to restore capitalization to previously strong
levels in the medium term. Risk-adjusted capitalization has
decreased since 2004 due to increasing underwriting leverage, the
ongoing drain on earnings from west coast construction defect
claims and the 2005 acquisition of FPIC. Impacting surplus growth
in 2008 were both realized and unrealized capital losses on
Mercer�s investment portfolio, stockholder dividends and an
increase in the group�s non-admitted deferred tax asset.
The ratings reflect Mercer�s adequate capitalization, its solid
operating performance and conservative management philosophy. The
group continues to record favorable underwriting results, which
have been an important driver of strong pre-tax returns on both
revenue and surplus that either meet or exceed industry peers.
These positive rating factors are partially offset by Mercer�s
declining level of risk-adjusted capitalization, elevated expense
structure and the risks associated with possible further adverse
development on its construction defect liabilities. These concerns
are partially mitigated by the historically strong reserve
positions taken on more recent accident years.
With the October 1, 2005 acquisition of FPIC by Mercer�s
publicly-traded parent, Mercer, Inc. [NASDAQ:MIGP], Mercer
reduced its geographic concentration from nearly 80% in New Jersey
(prior to the acquisition) to nearly 30% and roughly 55% in
California (post acquisition).
For Best�s Credit Ratings, an overview of the rating process and
rating methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings,
including any additional methodologies and factors that may have
been considered, can be found at
www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service
credit rating organization dedicated to serving the financial and
health care service industries, including insurance companies,
banks, hospitals and health care system providers. For more
information, visit www.ambest.com.
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