A.M. Best Affirms Ratings of Donegal Insurance Group's Members, Michigan Insurance Company and Doneg
A.M. Best Affirms Ratings of Donegal Insurance Group's Members, Michigan Insurance Company and Donegal Group Inc.
OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a" of the members of the Donegal Insurance Group (Marietta, PA) (Donegal Group). A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a" of Michigan Insurance Company (MIC) (Grand Rapids, MI), the stand-alone rated subsidiary of Donegal Group Inc. (Delaware) [NASDAQ: DGICA and DGICB].
In addition, A.M. Best has affirmed the ICR of "bbb" of the group's publicly-traded holding company, Donegal Group Inc. The outlook for all ratings is stable. (See below for a detailed list of the companies.)
The affirmation of the ratings of the Donegal Group's members is based on their consolidated financial strength, which is reflected by adequate risk-adjusted capitalization, sound balance sheet liquidity, continued positive earnings and good geographic and product line diversification. Although the individual companies within the Donegal Group play a specific role in the organization's overall business plan and their operating performance may vary, each contributes favorably to the group's risk-adjusted capitalization. In addition, each of the members supports Donegal Group's overall business strategy and each benefit from shared senior management and information technology systems, intercompany reinsurance and the added financial flexibility of Donegal Group Inc.
These positive rating factors are offset in part by a downturn in the organization's operating performance in recent years, strong competitive market pressure, weak economic conditions and a low interest rate environment. Operating performance has declined primarily due to increased frequency of property claims from severe weather events and lower investment yields. A.M. Best looks favorably upon the actions being taken by management to improve operating performance through rate increases, stronger underwriting standards and use of enterprise risk management.
The ratings of MIC are mainly reflective of its sound capitalization and historically favorable operating performance partially offset by a modest decline in earnings and concentration of risk in Michigan. The ratings of MIC reflect its successful integration following its acquisition by Donegal Group Inc. in 2010.
The ICR of Donegal Group Inc. recognizes the overall financial strength of the property/casualty insurance operation, its moderate amount of financial leverage and the subordination of its creditors to the insurance companies' policyholders.
Although capitalization and business profile are supportive of the organization's ratings, operating performance in recent years has fallen below A.M. Best's expectations. Results through the first six months of 2012 are an improvement over the prior year; however, the ratings and outlook may come under pressure if a favorable earnings trend does not develop. The ratings would be further stabilized by stronger earnings that lead to capital appreciation without excessive growth.
The FSR of A (Excellent) and ICRs of "a" have been affirmed for the following members of Donegal Insurance Group:
Atlantic States Insurance Company
Donegal Mutual Insurance Company
Le Mars Insurance Company
The Peninsula Insurance Company
Peninsula Indemnity Company
Sheboygan Falls Insurance Company
Southern Insurance Company of Virginia
Southern Mutual Insurance Company
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. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Rating Members of Insurance Groups"; "Equity Credit for Hybrid Securities"; "Insurance Holding Company and Debt Ratings"; and "Catastrophe Analysis in A.M. Best Ratings." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visitwww.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.
A.M. Best Co.
Charles M. Huber
Managing Senior Financial Analyst
908-439-2200, ext. 5122
charles.huber@ambest.com
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
rachelle.morrow@ambest.com
Joseph A. Burtone
Assistant Vice President
908-439-2200, ext. 5125
joseph.burtone@ambest.com
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com
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