KBRA Affirms Ratings for The Philadelphia Contributionship Operating Companies and The Philadelphia Contributionship Mutual Holding Company
7 Sep 2023 | New York
KBRA affirms the A- insurance financial strength rating (IFSR) of The Philadelphia Contributionship For The Insurance Of Houses From Loss By Fire, Inc. (TPC), The Philadelphia Contributionship Insurance Company, and Germantown Insurance Company and the BBB- issuer rating of The Philadelphia Contributionship Mutual Holding Company. The Outlook for all ratings is Stable.
TPC is the oldest property insurance company in the United States today. It primarily writes homeowners’ and dwelling fire insurance in Pennsylvania and New Jersey.
Key Credit Considerations
The ratings reflect TPC’s strong risk adjusted capitalization and surplus growth over the past decade, resulting in conservative underwriting leverage ratios that are significantly stronger than the industry average. The rating also reflects TPC’s strong management team with a deep bench, consistent favorable prior year reserve development, a sound enterprise risk management framework that is appropriate for the company’s scope of operations, and an investment portfolio that has historically provided favorable investment returns. Balancing these strengths are TPC’s heightened level of investment risk, with equities comprising approximately 57% of the investment portfolio. However, as of June 30, 2023, equity market volatility is partially offset by TPC’s high-quality bond portfolio and an equity allocation that consists primarily of blue-chip stocks. Profitability metrics have been unfavorable in recent years due to excessive growth arising out of a previous expansion strategy. Management is executing a three-year plan to reverse this trend primarily by maintaining rate adequacy and restructuring their agency distribution system, along with a variety of other initiatives, which has improved near term results. The company has moderate exposure to natural catastrophes and other large non-catastrophe events of increasing severity due to its line of business and geographic areas of operation and is also exposed to execution risk related to their strategic plan.
Rating Sensitivities
Controlled geographic diversification, decreased equity exposure, and sustained favorable underwriting results may result in positive rating action.
Reduction in risk-adjusted capitalization and increased balance sheet leverage, unfavorable earnings trends, and adverse change in risk profile may result in negative rating action.
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