Hochheim Prairie Farm Mutual Insurance Assoc. And Subsidiary Ratings Remain On CW Negative Despite Reinsurance Renewal

Stocks and Financial Services Press Releases Friday March 2, 2018 08:36
NEW YORK--2 Mar--S&P Global Ratings

NEW YORK (S&P Global Ratings) March 1, 2018--S&P Global Ratings said today it was keeping its ratings on Hochheim Prairie Farm Mutual Insurance Assoc. (HPFMIA) and its subsidiary Hochheim Prairie Casualty Insurance Co. (HPCIC; collectively Hochheim) on CreditWatch with negative implications. The financial strength ratings remain at 'B+'.

We believe Hochheim has demonstrated a strong ability to rebuild its capital despite the timing and severity of Hurricane Harvey. As of Dec. 31, 2017, it had net loss of $5.5 million, down $2.8 million from the previous year, with a 110% combined ratio versus 107.5%. As of year-end 2017, the company lost 17.3% of its capital, 17 points more than the 0.1% lost in 2016. We believe its capital base continues to be at risk--especially as the active storm season approaches in the second quarter. A lower year-end capital base, increased exposure due to reduction in quota share, and increased capital charges both from a regulatory front, with the National Assn. of Insurance Commissioners now including a provision for catastrophe loss, as well as in our 1 in 250 PML charge due to changes in the tax code. While these changes expose the capital base to greater risk from future weather events and pressures current RBC-adequacy levels commensurate with the rating level, in our view, Hochheim continues to improve its underwriting, reduce geographic concentrations in certain counties, and rely heavily on reinsurance despite the sizeable increase in costs.

The placement of our ratings on Hochheim on CreditWatch with negative implications highlights our concerns regarding the group's ability to withstand an active storm season in second-quarter 2018 and maintain credit strength. Due to its exposure to manmade and natural catastrophes in Texas, its ability to grow its capital organically is somewhat restricted. Over the next 90 days, we will assess the weather activity in Texas and the company's ability to withstand expected losses from an RBC standpoint.

We may lower our ratings by up to two notches in the next three to nine months if Hochheim can't maintain its current RBC levels through the active storm season or there is a risk of regulatory intervention.

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