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Mercury General & Units Receive Rating Action from A.M. Best
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Mercury General Corporation (MCY - Free Report) recently received rating action from A.M. Best. The rating agency revised the company’s outlook to negative from stable as well as affirmed the ICR of “a-.”
This apart, the outlook for the insurance bodies of Mercury Casualty Group were revised to negative from stable by credit rating giant, A.M. Best. In addition the rating agency affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-“ of these insurance bodies.
Moreover, the insurance entities within the American Mercury Insurance Group witnessed rating action from A.M. Best. The FSR of A- (Excellent) and the ICRs of “a-” have been affirmed by the credit rating agency. In this case, however, the outlook for each of the entities remained stable.
The outlook revision stems from adverse reserve development of approximately $40 million, which was recorded in the first quarter of 2016. Personal auto liability losses incurred by the Florida and California branch offices for the accident years 2012 through 2014 mainly resulted in the adverse reserve development. Further, Mercury Casualty witnessed a fall in its risk-adjusted capital position owing to shareholder dividends and growth in the group’s probable maximum loss (PML) from a 1-in-250-year earthquake event.
Favorable factors behind Mercury Casualty’s rating affirmations include the group’s sufficient risk-adjusted capitalization, though reduced, which was supported by its consistent and robust operational performance. Also, the group continues to maintain solid independent agency relationships, sustained levels of investment income and display considerable improvement in underwriting trends over the past few of years through year-end 2015.
However, Mercury Casualty’s business concentration within California partially offsets the aforementioned positive rating factors as this exposes the company to market volatility, potential earthquake losses, legislative changes and legal decisions. The past performance of the group has also been affected by this concentration risk indicated by significant price competition, escalating loss costs.
Moreover, the California private passenger auto insurance market witnessed inflationary trends on its bodily injury coverage due to such risk. This led to a negative impact on the underwriting income, thereby resulting in adverse loss reserve development in some accident years.
Irrespective of the reduced risk-adjusted capital, the group’s ratings continue to benefit from the financial flexibility provided by Mercury General. The group enjoys accessibility to capital markets and has more than $150 million of liquid assets that can be used to strengthen its capital position. Mercury General also maintains decent financial leverage and solid interest coverage.
Further, if the decline in Mercury Casualty’s risk-adjusted capital fails to meet the rating agency’s expectations at current ratings, the group might witness a rating downgrade. Decline in overall profitability or significant adverse reserve development could also result in downward revision in ratings.
A robust level of risk-adjusted capital, underwriting performance and the unrestricted financial support offered by the parent company are reflected by the ratings affirmed to American Mercury Insurance. Factors which partially offset the positives include the group’s high underwriting leverage, volatile underwriting and operating performance as well as its exposure to catastrophic events.
However, American Mercury Insurance’s relationship with its parent company or a massive reduction in the profitability of its book business, are some of the factors which could result in rating pressure.
Zacks Rank and Stocks to Consider
Currently, Mercury General carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks are Markel Corp. (MKL - Free Report) , NMI Holdings, Inc. (NMIH - Free Report) and National General Holdings Corp. . Each of these stocks sports a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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Mercury General & Units Receive Rating Action from A.M. Best
Mercury General Corporation (MCY - Free Report) recently received rating action from A.M. Best. The rating agency revised the company’s outlook to negative from stable as well as affirmed the ICR of “a-.”
This apart, the outlook for the insurance bodies of Mercury Casualty Group were revised to negative from stable by credit rating giant, A.M. Best. In addition the rating agency affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-“ of these insurance bodies.
Moreover, the insurance entities within the American Mercury Insurance Group witnessed rating action from A.M. Best. The FSR of A- (Excellent) and the ICRs of “a-” have been affirmed by the credit rating agency. In this case, however, the outlook for each of the entities remained stable.
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The outlook revision stems from adverse reserve development of approximately $40 million, which was recorded in the first quarter of 2016. Personal auto liability losses incurred by the Florida and California branch offices for the accident years 2012 through 2014 mainly resulted in the adverse reserve development. Further, Mercury Casualty witnessed a fall in its risk-adjusted capital position owing to shareholder dividends and growth in the group’s probable maximum loss (PML) from a 1-in-250-year earthquake event.
Favorable factors behind Mercury Casualty’s rating affirmations include the group’s sufficient risk-adjusted capitalization, though reduced, which was supported by its consistent and robust operational performance. Also, the group continues to maintain solid independent agency relationships, sustained levels of investment income and display considerable improvement in underwriting trends over the past few of years through year-end 2015.
However, Mercury Casualty’s business concentration within California partially offsets the aforementioned positive rating factors as this exposes the company to market volatility, potential earthquake losses, legislative changes and legal decisions. The past performance of the group has also been affected by this concentration risk indicated by significant price competition, escalating loss costs.
Moreover, the California private passenger auto insurance market witnessed inflationary trends on its bodily injury coverage due to such risk. This led to a negative impact on the underwriting income, thereby resulting in adverse loss reserve development in some accident years.
Irrespective of the reduced risk-adjusted capital, the group’s ratings continue to benefit from the financial flexibility provided by Mercury General. The group enjoys accessibility to capital markets and has more than $150 million of liquid assets that can be used to strengthen its capital position. Mercury General also maintains decent financial leverage and solid interest coverage.
Further, if the decline in Mercury Casualty’s risk-adjusted capital fails to meet the rating agency’s expectations at current ratings, the group might witness a rating downgrade. Decline in overall profitability or significant adverse reserve development could also result in downward revision in ratings.
A robust level of risk-adjusted capital, underwriting performance and the unrestricted financial support offered by the parent company are reflected by the ratings affirmed to American Mercury Insurance. Factors which partially offset the positives include the group’s high underwriting leverage, volatile underwriting and operating performance as well as its exposure to catastrophic events.
However, American Mercury Insurance’s relationship with its parent company or a massive reduction in the profitability of its book business, are some of the factors which could result in rating pressure.
Zacks Rank and Stocks to Consider
Currently, Mercury General carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks are Markel Corp. (MKL - Free Report) , NMI Holdings, Inc. (NMIH - Free Report) and National General Holdings Corp. . Each of these stocks sports a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>