[January 11, 2013]

A.M. Best Upgrades Ratings of Mt. Morris Mutual Insurance Company

A.M. Best Co. has upgraded the financial strength rating (FSR) to B+ (Good) from B (Fair) and the issuer credit rating (ICR) to "bbb-" from "bb+" of Mt. Morris Mutual Insurance Company (MMIC) (Coloma, WI). The outlook for ICR has been revised to stable from negative, while the outlook for the FSR is stable.

The rating actions reflect MMIC's improved risk-adjusted capitalization, strengthened policyholders' surplus and operating income, which resulted from a correction of a significant accounting error relating to reinsurance recoverables. The ratings also reflect the company's positive operating performance over the latest five-year period, which resulted from a steady stream of investment income that offset underwriting losses. MMIC also benefits from a long-standing local market presence and strong agency relationships, which have developed over the course of its 137-year history.

The ratings reflect changes that MMIC's management has implemented to its internal controls to obviate reoccurrence of this accounting rror. Additionally, the company has implemented several strategies designed to improve underwriting results, including rate level adjustments, exposure mitigation activities and more refined underwriting techniques. Furthermore, MMIC has revised its investment strategy to reduce its equity holdings in an effort to insulate policyholders' surplus from future equity market volatility.

Partly offsetting these positive rating factors are MMIC's elevated underwriting and investment leverage, limited product diversification and geographic concentration of risks in Wisconsin. This single-state concentration exposes the company to competitive market conditions, frequent and severe weather-related events and potential judicial and regulatory actions.

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"; "Understanding BCAR for Property/Casualty Insurers"; and "Catastrophe Analysis in A.M. Best Ratings." 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.

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