AM Best Downgrades Credit Ratings of Frederick Mutual Insurance Company

AM Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bbb+” from “a-” of Frederick Mutual Insurance Company (FMIC) (Frederick, MD). The outlooks of these Credit Ratings (ratings) have been revised to stable from negative.

The ratings reflect FMIC’s balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.

The rating downgrades reflect the change in the company’s balance sheet strength assessment to strong from very strong. FMIC has reported surplus losses in each of the past five years, primarily owed to underwriting losses and adverse reserve development related to claims from prior years. Although risk-adjusted capitalization and policyholder surplus began to stabilize in 2019, surplus declined by 39% from 2014 to 2018, including a 6% decline in 2018 owed to an increase in nonadmitted assets and unrealized capital losses. A portion of the surplus decline in recent years was anticipated by management as part of the re-underwriting process.

The stable outlooks reflect improved underwriting profitability after a change in management during 2016. Since then, FMIC has introduced a new business owner’s product, entered additional states, increased rates, and terminated relationships with poorer performing agencies. These efforts have improved the company’s loss & loss adjustment expense ratio to 58.8 in 2018 from 90.5 in 2014. Additionally, the current management team strengthened loss reserves in 2016, and since that time FMIC has reported favorable loss reserve development.

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.

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