A.M. Best Assigns Rating to Florida Family Mutual.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Jan. 15, 2001

A.M. Best Co. has assigned an initial financial strength rating of B+ (Very Good) to Florida Family Mutual Insurance Company and assigned a Financial Size Category of IV.

The rating reflects the company's adequate capitalization, prudent underwriting guidelines and profitable operating performance. The company's current capital base consists primarily of a surplus note from its exclusive managing general agency, Florida Family Insurance Services, LLC (FFIS). Although the majority of the company's capital structure is currently in the form of a debt-like instrument, the company plans to complete a demutualization plan during the first quarter of 2001.

As a relative newcomer to the Florida property insurance marketplace, the company's operating experience is somewhat limited. However, Florida Family's initial operating performance has been consistently profitable as loss ratios have been significantly better than those of its property industry peers. Although partially attributed to the lack of significant storm activity, the loss experience also reflects the company's strict underwriting guidelines and emphasis on profitability rather than market share. In addition, the company has implemented a geographic risk mitigation strategy to minimize its catastrophe exposure through the use of "ex-wind" policies in the coastal and southern regions of the state.

Partially offsetting these positive rating factors are the company's significant dependence on reinsurance, high expense structure, limited operating experience, geographic concentration with subsequent exposure to potential catastrophe losses and regulatory and competitive market pressures. The company's dependence on reinsurance is evident in its comparatively low overall business retention of just over 20% and its subsequently elevated gross leverage position of nearly six times its property industry peers. Although the reinsurance program provides the company with significant protection in terms of potential losses, it also has the effect of decreasing overall independence, particularly given the evolving reinsurance market. As a property-only writer in the Florida market, the company has significant exposure to catastrophe losses--especially to hurricanes--with potential gross catastrophe losses equating to multiples of its capital base. However, the company maintains an adequate reinsurance program that limits the net probable maximum loss from a 100-year event to approximately 20% of surplus.

This is the second stand alone Florida Residential Property and Casualty Joint Underwriting Association (JUA) "take-out" company rated by A.M. Best and is representative of the expanding ratings coverage of these newly formed Florida-based companies.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.