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Home>A.M. Best Affirms Credit Ratings of Members of Mercury Casualty Group

A.M. Best Affirms Credit Ratings of Members of Mercury Casualty Group

A.M. Best Affirms Credit Ratings of Members of Mercury Casualty Group

09/28/2017

A.M. Best Affirms Credit Ratings of Members of Mercury Casualty Group

A.M. Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the insurance entities within the Mercury Casualty Group (Mercury) (headquartered in Los Angeles, CA). The outlook of these Credit Ratings (ratings) is negative. Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of the insurance entities within the American Mercury Insurance Group (AMI) (headquartered in Oklahoma City, OK). The outlook of these ratings is stable.

Concurrently, A.M. Best has affirmed the Long-Term ICR of “a-” of Mercury and AMI’s ultimate parent holding company, Mercury General Corporation (MGC) (Los Angeles, CA)(NYSE:MCY). The outlook of this rating is negative. In addition, A.M. Best has affirmed the Long-Term Issue Credit Rating of “a-” on MGC’s $375 million 4.4% senior unsecured notes due 2027. The outlook of this rating is negative.

The ratings of the members of Mercury reflect their adequate risk-adjusted capitalization, aided by consistent and sustained earnings, which have been achieved through strong independent agency relationships, historically strong investment income, generally improved operating results over the past several years and the financial flexibility of MGC. MGC has access to capital markets, as demonstrated earlier this year when it issued $375 million of senior notes, which were used to pay down bank debt at the operating companies. As of June 30, 2017, financial leverage remains modest with a debt to capital ratio of 17.4%, and interest coverage remains strong. MGC also has over $175 million of liquid assets that could be utilized to buttress Mercury’s capital position if need be.

The group also leverages technology to enhance operating efficiencies, renewal persistency and customer satisfaction. Mercury maintains a sustainable competitive advantage within its core personal auto segment, which includes pricing, risk classification expertise and aggressive claims management practices.

These positive rating factors are offset partially by significant price competition, the group’s business concentration in California and recent adverse loss reserve development on the auto liability line, which totaled $85 million in 2016. Mercury’s business concentration within California exposes it to market volatility, earthquake losses, legislative changes and judicial decisions. As a result, Mercury maintains moderate catastrophe exposure, particularly California earthquake, although the net probable maximum loss has been reduced due to additional reinsurance purchases in 2017.

The ratings of the members of AMI reflect its solid level of risk-adjusted capital, underwriting performance that is generally comparable to the private passenger standard auto composite over the recent five-year period and the explicit financial support demonstrated in the past by MGC. These positive rating factors are offset partially by the group’s high underwriting leverage, volatile underwriting and operating performance, and catastrophe exposure to potentially severe weather events throughout its footprint.

The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” have been affirmed with negative outlooks for the following members of Mercury Casualty Group:

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