OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has assigned a financial strength rating of A (Excellent) and an issuer credit rating of “a” to Texas Mutual Insurance Company (TMIC) (Austin, TX). The outlook assigned to both ratings is stable.
The ratings reflect TMIC’s superior risk-adjusted capitalization, strong underwriting and overall operating performance and leading position in the Texas workers’ compensation market. The ratings also acknowledge the company’s experienced management team, knowledge of the Texas market, comprehensive enterprise risk management, reputation among policyholders for a high level of service and profit sharing, effective claims management, medical network and loss control services, commitment to reserve adequacy and prudent investment management. Furthermore, as the insurer of last resort in Texas, TMIC benefits from its ability to utilize a multi-tier underwriting and pricing approach and exemption from federal income taxes.
These positive rating factors are somewhat offset by the volatility in TMIC’s operating results in recent years, particularly in 2008 when large realized and unrealized capital losses were reported, primarily reflecting its above-average investment allocation to equity securities. In addition, TMIC operates as a single state, monoline insurer with limited geographic spread that exposes its operations to changes in local regulatory, economic and competitive environments. Moreover, in the near term, the company’s operating performance appears likely to be pressured by continued competitive market conditions, the likelihood of less favorable prior year loss reserve development and a continued decline in net investment income as a result of the current low interest rate environment. Nevertheless, A.M. Best believes TMIC has significant operating and financial flexibility as a result of its strong balance sheet, competitive loss and loss adjustment expense ratios and sizable policyholder dividend payments, which can be managed to benefit operating profitability and surplus. Movements in Washington, DC that are focused on tax-exempt organizations could potentially impact the federal tax-exempt status of certain state funds such as TMIC. Despite these concerns, the outlook reflects TMIC’s excellent capitalization, significant operating and financial flexibility and strong market position.
While A.M. Best believes TMIC’s ratings/outlook are well positioned at their current levels, they could come under pressure should continued soft market conditions and a lack of underwriting discipline result in the company’s underwriting and overall profitability underperforming its peers; local legislative, regulatory or economic changes adversely affect the company’s operating fundamentals; or should the company lose its federal tax-exempt status.
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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “The Treatment of Terrorism Risk in the Rating Evaluation”; and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
A.M. Best Co.
W. Dolson Smith, CFA, 908-439-2200, ext. 5379
Senior Financial Analyst
Michael J. Lagomarsino, CFA, 908-439-2200, ext. 5810
Assistant Vice President
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
Source: A.M. Best Co.