State Auto’s response to A.M. Best rating revision
A.M. Best has announced their decision to revise the financial strength rating of the State Auto Insurance Companies to A- (Excellent) with a stable outlook from A (Excellent) with a negative outlook. They cited three factors in their decision:
- Our five-year operating results.
- Adverse development on business written through Risk Evaluation & Design LLC (RED) that negatively affected our 2014 results.
- The potential for additional RED adverse development in 2015.
I'm disappointed by A.M. Best's decision. We took major steps in recent years to improve profitability in our auto and homeowners lines and worked hard in 2014 to do what it takes to put RED behind us. We feel confident we have, which will be further demonstrated by the excellent first quarter results STFC will report on Thursday.
In their announcement and in conversations we've had with them directly, A.M. Best acknowledges our strength going forward. They refer to our "sound overall liquidity position and manageable catastrophe exposure," and note that we've taken "significant actions" to address the challenges that RED presented.
Since our founding in 1921, doing the right thing has been at the heart of who we are as a company. We did the right thing by being among the first in our industry to address profitability issues in homeowners insurance. We did the right thing by taking important but difficult steps in 2011 and 2012 to improve our capital position and sustain our financial stability. And we did the right thing by addressing the issues with RED head-on.
In addition to a strong first quarter 2015, we experienced strong results in 2013 and 2014, as well. Excluding the impact of RED and the homeowners quota share treaty that expired in 2014, State Auto Financial Corporation's GAAP combined ratios were 96.5 for 2013 and 95.4 for 2014
This is an exciting time for our company, in part because of the challenges that are now behind us. Moving forward, we'll upgrade our technology, become a faster and more innovative product provider, and continue to provide exceptional service to our customers. Our nearly century-long commitment to the independent agency system hasn't changed, because our success is built on the strength of our relationships with you. That will remain our focus in the months and years ahead.
Should you have questions, feel free to reach out to a member of our senior leadership team.
Additional information is available in a news release issued today (PDF).