KBRA Affirms Ratings for The Philadelphia Contributionship Operating Companies and The Philadelphia Contributionship Mutual Holding Company
6 Sep 2024 | New York
KBRA affirms the A- insurance financial strength ratings (IFSR) of The Philadelphia Contributionship For The Insurance Of Houses From Loss By Fire, Inc. ("TPC"), The Philadelphia Contributionship Insurance Company ("PCIC"), and Germantown Insurance Company ("GIC"; collectively, "the Contributionship") and the BBB- issuer rating of The Philadelphia Contributionship Mutual Holding Company. The Outlook for all ratings is Stable.
Key Credit Considerations
The ratings reflect the Contributionship'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 ratings also reflect the Contributionship’s 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 the Contributionship’s heightened level of investment risk, with equities comprising approximately 51% of the investment portfolio. However, equity market volatility is partially offset by the Contributionship’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 restore underwriting profitability primarily by maintaining rate adequacy and improving their agency distribution system, along with a variety of other initiatives, which have significantly improved results in recent years. The company has material exposure to large non-catastrophe losses and moderate exposure to natural 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.
The Contributionship is the oldest property insurance company in the United States today. It primarily writes homeowners’ and dwelling fire insurance in Pennsylvania and New Jersey.
Rating Sensitivities
Factors that could lead to an upgrade include controlled geographic diversification, decreased equity exposure, and sustained favorable underwriting results.
Factors that could lead to a downgrade include material, sustained reduction in risk adjusted capitalization and increased balance sheet leverage, unfavorable earnings trends, and adverse change in risk profile.
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