Press Release|Insurance

KBRA Affirms Ratings for Brotherhood Mutual Insurance Company

1 Aug 2023   |   New York


KBRA affirms the A- insurance financial strength rating (IFSR) for Brotherhood Mutual Insurance Company (BMIC or Brotherhood Mutual). KBRA also affirms the long-term credit rating of BBB on BMIC’s outstanding surplus notes. The Outlook for both ratings is Stable.

Brotherhood Mutual is a property/casualty company headquartered in Fort Wayne, Indiana. BMIC is a niche underwriter, offering insurance products only to churches and related ministries.

Key Credit Considerations

The rating reflects BMIC’s BMIC’s focused market strategy and consistent surplus growth over the long term, historically sound risk-adjusted capitalization, positive net earnings, generally favorable combined ratios, and high retention rates. Brotherhood Mutual’s management team is highly experienced and has a strong track record of growth and risk management. The company has a high degree of geographic diversification, with limited exposure concentrations. KBRA believes BMIC has fundamentally sound underwriting and financial analytics with advanced technology for risk selection.

Balancing these strengths is Brotherhood Mutual’s above average investment risk, as characterized by a high level of equities to surplus, although the company is in the process of reducing its equity exposure. In recent years, the company has seen its underwriting leverage and reserve leverage deteriorate and its risk-adjusted capitalization steadily decline, which was somewhat offset by BMIC’s surplus note issuance in March 2022. Pressure on underwriting leverage is somewhat offset by premium increases related to rising TIV and taking rate, while policy count remains flat. Recent adverse reserve development has also contributed to underwriting losses in four of the last five years and less consistent net income. In addition, increased frequency from losses due to weather events and fire have negatively impacted the company in recent years. KBRA is also concerned by increased retention in the company’s property catastrophe cover and the non-renewal of its aggregate catastrophe per risk treaty in 2023 that it had maintained for many years and considered integral to its risk management and a driver of profitability. However, KBRA also recognizes BMIC’s enhanced reserving practices implemented in 2018 pursuant to which it books reserves closer to the high end of the actuary’s range.

Rating Sensitivities

Factors that could positively impact the ratings include sustained growth in earnings, favorable capital and underwriting leverage trends, reserve adequacy over an extended period, and improved financial flexibility and liquidity.

Factors that could negatively impact the ratings include material reduction in risk adjusted capitalization and material deterioration in underwriting leverage unrelated to taking rate, sustained unfavorable earnings trends, inability to obtain sufficiently robust reinsurance protection on an economic basis, additional material adverse reserve development, and loss of key members of the management team.

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