AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "bbb+" of Illinois Casualty Company (ICC). Concurrently, AM Best has affirmed the Long-Term ICR of "bb+" of ICC Holdings, Inc. (ICCH) [NASDAQ: ICCH], the publicly traded holding company that owns 100% of ICC. The outlook of these Credit Ratings (ratings) is stable. Both companies are domiciled in Rock Island, IL.
The ratings reflect ICC’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
ICC’s balance sheet strength is assessed as very strong and reflects the company having the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), its favorable underwriting leverage measures compared with the commercial casualty composite averages, and its conservative reserving practices. ICC also has access to the capital markets through its publicly traded parent, ICCH. ICC reported surplus growth in 2019 primarily driven by net investment income and unrealized capital gains. Surplus modestly declined in the first quarter of 2020, amid the COVID-19 crisis, due to a downward shift in the equity market and subsequent unrealized capital losses; however, this level partially rebounded in the second quarter.
ICC’s operating performance remains adequate. The company’s five-year average combined ratio is slightly better than the commercial casualty composite average, but its five-year average operating ratio, pre-tax return on revenue and total return on equity lag the composite averages. ICC has reported positive pre-tax operating and net income in each of the past five years, but has reported underwriting losses in two of those years due to increased weather-related activity. While the food and beverage industry has been materially impacted by the pandemic, the loss impact for ICC is mitigated by exclusionary language embedded within its insurance policies. Furthermore, the company has acquired Federal Home Loan Bank system loans to offset potential liquidity issues after it implemented premium deferrals to ease payment pressures on its policyholders.
The company’s business profile is assessed as limited, primarily driven by its concentration in several Midwestern states, including Illinois, Minnesota, Missouri and Iowa, and its niche role in the food and beverage industry. ICC has a long-standing history of serving its target markets and is the exclusively endorsed insurer for several industry associations. ICC has expanded since it demutualized, and it currently writes business in 11 states.
ICC’s ERM practices are appropriate for its risk profile as a public, specialty insurer primarily operating in the Midwest. The company maintains a developed ERM framework that focuses on the company’s most critical risks. It maintains formalized risk appetite and tolerance statements, and actively measures, monitors and manages each of its identified risks. Additionally, ICC purchases significant reinsurance, mitigating the risk of long-tail events.
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