These rating actions follow the recent announcement that the company would report a net loss for the third quarter 2003 and year-to-date due to loss reserve increases in several lines of business and the cost of claims resulting from Hurricane Isabel. Despite the losses, the rating affirmation reflects the company's strong capitalization, historical profitability and strong regional market franchise.
Offsetting these positive rating factors are A.M. Best's concerns with the operating results reported in 2003 and the potential for continued adverse loss reserve development. According to management, the loss reserve development stems from increased loss severity and different loss patterns since the recent reorganization of the group's claims operations.
Moreover, there is some additional uncertainty as respects to Harleysville's leadership and future direction due to the retirement of Harleysville's chairman and chief executive officer at year-end 2003. As a consequence, Harleysville will be without a permanent successor until a replacement is appointed. The change in outlook reflects these uncertainties and is contingent upon stabilization in prior year reserves and restored profitability.
Harleysville is afforded additional financial flexibility through its publicly-traded holding company, HGIC, which has access to the public markets. HGIC maintains modest financial leverage, which is enhanced by excellent cash coverage.
The financial strength rating of A (Excellent) has been affirmed for the following property/casualty pooling members of Harleysville Insurance:
-- Harleysville Mutual Insurance Company
-- Harleysville Insurance Company of New York
-- Mid-America Insurance Company
-- Harleysville Worcester Insurance Company
-- Harleysville-Atlantic Insurance Company
-- Harleysville Insurance Company of New Jersey
-- Harleysville Insurance Company of Ohio
-- Harleysville Insurance Company
-- Harleysville Lake States Insurance Company
-- Harleysville Preferred Insurance Company
-- Harleysville Pennland Insurance Company
The financial strength rating of A- (Excellent) of Harleysville Life Insurance Company remains unaffected.
The following existing debt ratings have been affirmed:
Harleysville Group Inc.--
-- "bbb+" on $75 million 6.75% senior notes, due 2003
-- "bbb+" on $100 million 5.75% senior unsecured notes, due 2013
The following indicative ratings of the universal shelf registration have been affirmed:
Harleysville Group Inc.--
-- "bbb+" senior debt
-- "bbb" subordinated debt
-- Harleysville Group Capital Trust I and II-- "bbb-" preferred securities
-- "bbb-" preferred stock
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.co