A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A (Excellent) and the issuer credit rating (ICR) of “a” of the members of Lititz Mutual Insurance Pool (Lititz), which includes the operations of Lititz Mutual Insurance Company and its three reinsured affiliates: Farmers’ and Mechanics’ Mutual Insurance Company, Livingston Mutual Insurance Company and Penn Charter Mutual Insurance Company. All companies are domiciled in Lititz, PA.

The ratings reflect Lititz’s risk-adjusted capitalization that remains supportive of the ratings, positive surplus growth in most years, conservative leverage measures, consistently favorable loss reserve development and an adequate liquidity position. The revised outlook reflects Lititz’s underwriting losses and absence of pretax operating income over several years caused primarily by an increase in weather-related events and investments in technology. As a result, Lititz’s underwriting and operating performance measures currently lag the industry composite relative to its current rating level.

Management has undertaken key strategic initiatives recently to address the underwriting performance. These initiatives have included implementing a new policy administration system, introducing tier rating in the homeowner line, managing agency appointments and introducing required minimum deductibles and roof settlement endorsements in storm prone states. The company’s investment in a new policy administration system has also allowed Lititz to pursue rate more aggressively, chief among other benefits. While the technology investment has raised the expense ratio over the past couple of years, management expects that the efficiencies ultimately gained from this will benefit the underwriting and operating performance going forward.

Further negative rating actions may result if Lititz’s ongoing and planned initiatives do not lead to the expected improvement in underwriting performance or if there is a large decline in the value of its invested assets, which are heavily concentrated in equities, resulting in a reduction in policyholders’ surplus and/or deterioration in its risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio. Conversely, a revision in outlook back to stable may ensue if underwriting performance improves and is sustained while risk-adjusted capital remains strong.

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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

  • Catastrophe Analysis in A.M. Best Ratings
  • Rating Members of Insurance Groups
  • Risk Management and the Rating Process for Insurance Companies
  • Understanding BCAR for Property/Casualty Insurers

This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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A.M. Best Company, Inc.Adib Nassery, 908-439-2200, ext. 5687Financial Analystadib.nassery@ambest.comorGreg Williams, 908-439-2200, ext. 5815Assistant Vice Presidentgreg.williams@ambest.comorChristopher Sharkey, 908-439-2200, ext. 5159Manager, Public Relationschristopher.sharkey@ambest.comorJim Peavy, 908-439-2200, ext. 5644Assistant Vice President, Public Relationsjames.peavy@ambest.com