[November 19, 2012]

A.M. Best Revises Outlook to Negative for Members of Western Reserve Pool

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of A (Excellent) and issuer credit rating of "a" for the members of Western Reserve Pool, which consists of Lightening Rod Mutual Insurance Company, The Western Reserve Mutual Casualty Insurance Company and Sonnenberg Mutual Insurance Company. All companies are domiciled in Wooster, Ohio.

The negative outlook reflects the pool's trend of below average underwriting results driven by greater than expected weather-related events over several years and elevated operating expenses. The outlook considers the current challenges faced by management and the potential impact that ongoing weather- related losses will have on future underwriting results given the increased number of significant events observed in 2012 that will continue to impact underwriting profitability.

The ratings acknowledge Western Reserve's solid risk-adjusted capitalization and established market presence in Ohio and Indiana. he pool's capital position is attributed to its below average underwriting leverage and consistent generation of capital from its investment portfolio.

Western Reserve's operating performance has been impacted by significant losses stemming mainly from wind and hail storm events. Improving underwriting profitability remains a key objective of management and is being addressed through pricing refinements and segmentation, system enhancements and expense reduction initiatives.

Factors that could trigger further negative rating actions include weather-related events that cause significant underwriting losses or below average operating income that causes a significant decline in risk-adjusted capitalization.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Catastrophe Analysis in A.M. Best Ratings"; "Rating Members of Insurance Groups"; and "Understanding BCAR for Property/Casualty Insurers." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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