AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” (Good) from “bbb+” (Good) and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Independent Mutual Fire Insurance Company (IMFCO) (Chicago, IL). The outlook of the Long-Term ICR has been revised to stable from negative, while the outlook of the FSR is stable.

The Credit Ratings (ratings) reflect IMFCO’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The downgrade of IMFCO’s Long-Term ICR reflects its unfavorable operating performance results, which have shown a high degree of volatility in recent years. The company reported an elevated combined ratio of 135.4% through the third quarter of 2024, and an operating ratio of 122.5%. The company’s combined ratio marks the highest it has reported in a single year in over two decades, with the exclusion of 2021, when the company became a 10% participant in a quota share agreement effective throughout the year. During 2021, IMFCO reported a combined ratio of 163.5% and underwriting losses of over $15 million, as the company’s incurred losses were significantly heightened due to Winter Storm Uri in Texas, and the quota share treaty with Homeowners of America Insurance Company.

Additionally, underwriting losses have been higher through the third quarter of 2024 than in previous years, as the company has seen material storm-related losses. While the company’s pure loss ratio typically remains in the high 20% to mid-30% range, it increased to 58% through the third quarter of 2024. IMFCO reported some improvement through year-end 2023 as it reported a combined ratio of 99.5%; however, it was only the second time over the 10-year period that the combined ratio was below 115%, and the first time below breakeven since 2010. Consequently, the company’s operating performance assessment was changed to marginal from adequate, given that its five-year average combined ratio significantly lags the other rated companies within its composite that were at that same level.

The ratings reflect IMFCO’s balance sheet strength assessment of very strong, which is driven by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The business profile assessment of limited reflects the company’s product concentration, as nearly 100% of its overall business is property coverage. IMFCO’s ERM assessment of appropriate reflects its risk management capabilities that are considered to be commensurate with the complexity its business and align with its risk profile.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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