H Best Affirms Ratings of Harleysville Insurance

 

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4 February 2009 Wednesday 12:14 PM EST

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H Best Affirms Ratings of Harleysville Insurance

Rachelle Morrow

Oldwick, N.J.



H Best Co. has affirmed the ratings (FSR) of A-(Excellent) and issuer credit ratings (ICR) of "a-" of Harleysville Insurance (Harleysville) and its property / casualty members setting. Same time Best affirmed the FSR of B + + (Good) and ICR of "BBB +" of Harleysville Life Insurance Company (Harleysville Life). In addition, the hours Best affirmed the ICR of "BBB-" and debt rating of "bbb-" on senior notes of the holding company publicly traded, Harleysville Group Inc (HGIC) [NASDAQ: HGIC ]. H Best has also affirmed the note indicative of "BBB-" on senior debt, "BB +" on subordinated debt, "bb" on trust preferred securities and "bb" on preferred shares that are filed under universal registration of HGIC. The outlook for the rating above is positive. All companies are domiciled in Harleysville, PA. (See link below for a detailed list of companies and notes.)

The ratings reflect Harleysville's excellent risk-adjusted capitalization, improved operating performance solid regional market franchise and future benefits to be derived from materials management for corrective action in recent years. The affirmation of the note recognizes the benefits of new initiatives Harleysville proactive pricing and underwriting, loss reserve development stability, cultural changes in claim management and field operations, and investment in predictive modeling and policy management systems to support efficiency and underwriting agency relationships. The group positive rating outlook recognizes these operational improvements and future benefits of those changes that relate to operating results, competitive advantages and capital formation. While management efforts have led to positive signs in recent years, AM Best believes that the fruits of these efforts are likely to be increasingly evident in the years to come. Sustainability remains a key factor.

Despite these attributes, Harleysville underwriting the commercial performance, while improving significantly lagged the industry in recent years. This is partly a reflection of the management initiatives to reduce prices in an environment that has resulted in modest reductions in premiums since 2003. In addition, although Harleysville has initiated actions to reduce costs and improve operating efficiencies, its expense ratio remains above the industry average. However, despite the decline in underwriting and overall profitability in the first nine months of 2008, the operating performance of the group has continued to improve compared to its peers and the industry and compared favorably to two.

In parallel, h Best has affirmed the ratings of Harleysville Life, recognizing its strategic position within the group of risk-adjusted capitalization for its opinion and its strategy of offering a diversified portfolio of life insurance and benefits products and services to the business group's main markets.

Partially offsetting these factors are Harleysville Life recent operating losses due to the strain of new law firms and the recent decline in its stated capital. The outlook reflects the commitment of the parent's life Harleysville, Harleysville Mutual Insurance Company (Harleysville Mutual), the head of the company Harleysville intercompany pool. H Best expects continued the capital of Harleysville Harleysville Mutual Life to support growth strategy.

Harleysville financial flexibility is afforded by HGIC, whose share of the Harleysville intercompany pool was amended to 80% to 72%, effective January 1, 2008. Taking into consideration HGIC Capital Management in 2008, which included continued repurchases of common actions, AM Best provides the debt of the company total capital to remain moderate, the increase of about 15% at the end of the 2008, 13.5% at the end of 2007. HGIC of total equity decreased by 14% to $ 654.9 million for the first nine months of 2008, primarily reflecting the strong common share repurchases, realized and unrealized investment losses offset by a net positive. HGIC of realized losses included $ 32.4 million of losses, more than half of what was on projected sales of securities. The company in May need to absorb additional depreciation on the value of the security previously associated with its program of lending, which has been canceled, even if its capital position to remain strong.

HGIC liquid funds should be well above average at the end of 2008 mainly because of the money received from Harleysville Mutual as part of the pool change January 1. This cash must be more than sufficient to meet fixed obligations HGIC in 2009.

For a complete list of Harleysville FSRS, ICRS and debt advice, please visit http://www.ambest.com/press/020405harleysville.pdf.

The main methods used in the determination of these opinions, including other methods of May and the factors that have been taken into consideration, can be found at http://www.ambest.com/ratings/methodology.

5 February 2009

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