KBRA Affirms Rating for Providence Mutual Fire Insurance Company

KBRA affirms the insurance financial strength rating (IFSR) of A- of Providence Mutual Fire Insurance Company (PMFIC). The Outlook for the rating is Stable.

Key Credit Considerations

The rating reflects solid risk adjusted capitalization, historically conservative underwriting leverage, sound liquidity, a high-quality bond portfolio, robust reinsurance, and an experienced management team. PMFIC's RBC ratio has been 786% or higher each of the last 5 years. The company also bolsters its balance sheet with a strong reinsurance program that protects the company to a 1-in-245 year event. PMFIC has underwriting leverage that has been lower than that of its peer group. Additionally, the company has strong liquidity ratios and a management team with extensive experience in the insurance industry. Offsetting these positive factors are unfavorable underwriting metrics, an elevated expense ratio, elevated equity investment allocation, and a limited market presence. Elevated combined ratios have been driven by poor personal auto results, catastrophe weather-related losses, large fire losses and an elevated expense ratio which compares unfavorably to peer averages. Providence Mutual has a limited market presence in the Northeastern United States and relies heavily on agency relationships to generate business.

Rating Sensitivities

Factors that could positively impact the rating include sustained profitable growth and stability in earnings, a consistent positive trend in organic surplus growth, or reporting improved underwriting metrics over an extended period. Factors that could negatively impact the rating include a significant deterioration in risk profile, a material reduction in capitalization, continued unfavorable earnings trends, a material deterioration in catastrophe reinsurance program, or a failure to meet management projections provided to KBRA.

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