[February 07, 2013]

A.M. Best Revises Outlook to Negative and Affirms Ratings of PEMCO Mutual Insurance Company

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of PEMCO Mutual Insurance Company (PEMCO) (Seattle, WA). The outlook for both ratings has been revised to negative from stable.

The revised outlook reflects PEMCO's recent weakened operating performance accompanied by its continued weak underwriting performance that together has begun to minimally erode capital at the company. Additionally, A.M. Best considered PEMCO's elevated, however markedly improved, expense ratio; elevated loss severities and frequencies in the most recent underwriting years; slightly above average underwriting leverage ratio; and a business concentration in the state of Washington, which subjects the company to judicial, regulatory and competitive risks.

The positive rating attributes are derived from PEMCO's historical operating gains and surplus growth, which have historically generated improved total returns on equity, as ell as the operational improvements management has made in the past five years to refocus PEMCO's efforts wholly on its property/casualty insurance base. These include the sale of PEMCO Technology Services Inc. and PEMCO Life Insurance Company, as well as the merger of PEMCO's subsidiary, PEMCO Insurance Company, back into PEMCO. PEMCO also has made a commitment to diversify its geographical footprint by augmenting its strong market presence in Washington with its entrance into the Oregon market, effective July 2011. PEMCO maintains a somewhat conservative investment philosophy, which is reflected in its moderate common stock leverage.

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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