CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the Insurer Financial Strength (IFS) rating of Greater New York Mutual Insurance Company (GNY) at 'A-'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
GNY's rating is supported by a conservatively-structured balance sheet, characterized by low operating leverage, no financial leverage, a relatively low-risk investment portfolio and a history of favorable loss reserve development. Balanced against these positive factors are GNY's small market position and material modeled catastrophe exposure.
GNY's market position and size/scale are categorized by Fitch as 'small' with annualized 2014 net written premium approaching $250 million and policyholders' surplus of $426 million as of Sept. 30, 2014. Consequently, absent other mitigating factors, a company with this profile would typically carry an IFS rating in the 'BBB' category.
GNY's combined ratio was 101.4% during the first nine months of 2014, including 7.8 percentage points of catastrophe losses. Full year 2013's combined ratio was 94.8% with zero catastrophe losses in an especially benign catastrophe year for the industry.
Year-to-date Sept. 30, 2014 net income was $11 million, down from $17 million for the same period in 2013. GNY's annualized return on surplus was modest at 3.4% through the first nine months of 2014.
GNY was scored as 'Adequate' by Fitch's Prism capital model, which is below guidelines for the company's current rating category. Natural catastrophe exposure is a key risk element that increases target capital levels for GNY under Prism, reflecting its commercial property insurance orientation and geographic business concentration.
The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is set to expire on Dec. 31, 2014. GNY has purchased private market terrorism reinsurance to supplement TRIA that is in place through year-end 2015. The terrorism reinsurance covers a maximum of $195 million in excess of a $20 million retention. There remains considerable uncertainty whether Congress will renew the terrorism reinsurance program in 2015 and regarding the cost and availability of private market terrorism, which would necessitate an assessment of GNY's aggregation of property exposures.
Other capital measures such as net leverage and NAIC risk-based capital ratio are considered better than median guidelines for GNY's current rating category. Statutory net leverage, calculated as written premiums plus liabilities divided by surplus, is conservative at 1.9 times at Sept. 30, 2014. In addition, GNY's NAIC RBC ratio was solid at 431% of the company action level at year-end 2013.
GNY added moderate amounts of equity and asset-backed securities to the investment portfolio in an effort to improve total returns. This incremental change in investment strategy did not materially change Fitch's view of investment risk as the 'risky assets' ratio was modest at approximately 16% of surplus.
GNY has reported favorable reserve development in the most recent five years. Favorable development year-to-date Sept. 30, 2014 was 1.9 percentage points on the combined ratio, which was comparable to the same period in 2013. Approximately 80% of total reserves are related to shorter-tail commercial multi-peril claims, while most of the balance is in workers' compensation insurance.
GNY has a niche providing habitational insurance to cooperative apartment buildings, condominium associations and apartment rental risks, and a wide variety of commercial classes of business. The company offers commercial multi-peril insurance predominantly in New York and New Jersey. The company has expanded over time into Midwest and Mid-Atlantic states. Approximately one-quarter of written premium is currently for business outside of New York and New Jersey.
RATING SENSITIVITIES
Key rating triggers for GNY that could lead to a downgrade include:
--A material catastrophe loss representing greater than 15% of current surplus;
--A significant change in GNY's conservative balance sheet such as deterioration in risk-based capital as measured by Fitch's capital model or a trend of unfavorable reserve development.
Key rating triggers for GNY that could lead to an upgrade include:
--Risk mitigation efforts that reduce probable maximum loss estimates from a hurricane making landfall in New York or New Jersey;
--A substantial improvement in market presence as well as diversification by product and geography.
Fitch has affirmed the following ratings with a Stable Outlook:
Greater New York Mutual Insurance Company
Insurance Company of Greater New York
Strathmore Insurance Company
GNY Custom Insurance Company
--IFS at 'A-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=958176
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