Providence Mutual Updates its Rating Process to Better Reflect Company’s Focus and Long-Term Financial Strength
Providence Mutual has made the decision to withdraw from the AM Best rating process and has advised the regulators in its state of domicile of its decision and rationale.
Providence Mutual obtains annual ratings from three SEC approved Nationally Recognized Statistical Rating Organizations (NRSRO) – AM Best, KBRA and Demotech – however, the credit model methodology changes that AM Best finalized in 2017, and started applying in the years thereafter, has prompted the company to withdraw from the AM Best rating process.
The National Association of Mutual Insurance Companies (NAMIC) recently lent public comment to AM Best on changes to the Best Credit Rating Methodology (BCRM), asserting that companies that write through singular distribution channels like the independent insurance agency network, many of which have been doing so for over one hundred years, should not be penalized for their strategic decisions and diminish the value of their financial strength. The NAMIC letter further encouraged the BCRM to shift to recognize the specific strengths of smaller mutual insurers, single state carriers, or niche market companies and appropriately weigh the value of a company’s longevity in the marketplace, and the financial strength that high levels of surplus and investment in reinsurance reflects.
Witnessing the change in focus of AM Best, Providence Mutual sought additional industry recognized NRSRO ratings. Since 2018, the company has been rated by Demotech, which focuses primarily on financial stability, with a Financial Stability Rating® of A’ (A Prime), Unsurpassed.
“Providence Mutual’s FSR is Unsurpassed,” said Joseph Petrelli, founder and CEO of Demotech, who added, “Providence Mutual’s rating is specifically reflected and covered under agency Errors and Omissions (E&O) policies. In 1989, Demotech became the first company to review and rate independent, regional and specialty carriers. We secured acceptance from the government sponsored enterprises, premium finance carriers and virtually all agent’s E&O carriers. Since our registration as an NRSRO (Insurance Companies), our ability to level the ratings playing field has been enhanced.”
In addition, Providence Mutual obtained a Kroll Bond Rating Agency rating (KBRA) in 2022 and has been rated A- for both 2022 and 2023. Both Demotech and Kroll are recognized and accepted by Fannie Mae and Freddie Mac lending entities.
Michele Streton, CEO of Providence Mutual, explained: “We use sophisticated risk modeling to understand the intersection between investment, underwriting and catastrophe risk to ensure we prioritize long-term solvency. Being able to make decisions solely for the long-term good of the company, our policyholders, and our agents is important to our success.
Streton added, “We have humanized the insurance experience and will continue to develop our strong mutually beneficial partnerships with independent agents, reinsurers, and our investment advisors, primarily focusing on property and commercial lines in our current geography.”
Source: Providence Mutual
