AM Best & Company, Oldwick, NJ, has affirmed Mutual Assurance Society of Virginia’s Financial Stability Rating of A (Excellent) with a stable outlook and its Long-Term Issuer Credit Rating of a+ also with a stable outlook. The ratings reflect Mutual Assurance Society of Virginia’s (Mutual Assurance) solid capitalization, strong liquidity and long-standing market presence in Virginia. These factors are partially offset by the fluctuation of total return measures over the past five years due to elevated common stock leverage, which subjects the company’s capital to volatility in the equity markets. In addition, Mutual Assurance’s geographic concentration exposes surplus to potential losses from frequent and severe weather-related events.
Positive rating factors are derived primarily from Mutual Assurance’s long-standing market presence in Virginia as a specialty writer of fire and homeowners insurance written on an assessable, perpetual basis. Strong branding has enabled the company to achieve favorable growth and business persistence in established markets. Despite this elevated leverage, the company’s five-year average total return on invested assets was nearly 10%, and the five-year average for this measure compared favorably to the personal property composite average. Capital gains have been a significant driver of net income and surplus gains in four of the last five years. Management initiated several actions to mitigate the impact of catastrophe losses on the company’s capitalization, including maintenance of a comprehensive reinsurance program, percentage deductibles for wind/hail events, and increases in policyholder assessments in periods following significant loss events.
Partially offsetting these positive rating factors are the company’s somewhat volatile total return measures in recent years, related to its geographic and business concentration, as well as its high common stock leverage, which has driven the company’s fluctuating total returns, particularly when viewed in conjunction with the challenging investment environment.
Mutual Assurance is addressing this issues and working on resolving them in the near future.