A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a" of Harleysville Insurance (Harleysville) and its property/casualty pooling members, including the lead company, Harleysville Mutual Insurance Company (Harleysville Mutual).

Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of "a-" of Harleysville Life Insurance Company (Harleysville Life), a direct life/health subsidiary of Harleysville Mutual. In addition, A.M. Best has affirmed the ICR of "bbb" and debt rating of "bbb" of the 46% publicly traded downstream holding company, Harleysville Group Inc. (HGIC) (NASDAQ: HGIC). The outlook for all ratings is stable. All companies are headquartered in Harleysville, PA. (See below for a detailed list of the companies and ratings.)

The ratings reflect Harleysville's excellent level of risk-adjusted capitalization, sound operating performance over the long term and strong regional market franchise. The group also benefits from the financial flexibility afforded through HGIC.

Partially offsetting these positive rating factors is Harleysville's consolidated pre-tax return on revenue measures, which slightly trail the commercial casualty composite over the long term. This is reflective of variability in the company's reported underwriting income given its exposure to weather-related events, as well as the near-term challenges associated with the highly competitive property/casualty environment and ongoing soft market conditions.

Harleysville's positive attributes reflect its focused underwriting discipline, commitment to conservative reserving and prudent management of catastrophe exposures. The group also benefits from strong name recognition and a solid market presence. The ratings also acknowledge the benefits derived from the group's predictive modeling initiatives, which should enhance results going forward. With the exception of Harleysville Pennland Insurance Company, which is 100% owned by Harleysville Mutual, HGIC directly owns all remaining property/casualty members of the group. HGIC's financial leverage of debt-to-total capital remains modest at approximately 13% at year-end 2010.

The rating affirmations of Harleysville Life acknowledge its strategic position within the group, adequate risk-adjusted capitalization for its current ratings and its strategy of providing a diversified portfolio of life insurance and related employee benefits products and services to the group's core business markets.

Partially offsetting these positive rating factors are Harleysville Life's operating losses due to statutory strain from new business and related declines in its reported statutory capital, which were offset by a capital contribution in recent years. The outlook reflects the ongoing explicit and implicit support of Harleysville Mutual to maintain adequate levels of capitalization within Harleysville Life's operations.

The FSR of A (Excellent) and ICRs of "a" have been affirmed for Harleysville Insurance and its following property/casualty members:

  • Harleysville Mutual Insurance Company
  • Harleysville Insurance Company of New York
  • Harleysville Worcester Insurance Company
  • Harleysville-Atlantic Insurance Company
  • Harleysville Insurance Company of New Jersey
  • Harleysville Insurance Company of Ohio
  • Harleysville Insurance Company
  • Harleysville Lake States Insurance Company
  • Harleysville Preferred Insurance Company
  • Harleysville Pennland Insurance Company

The following debt rating has been affirmed:

Harleysville Group Inc.--
-- "bbb" on $100 million 5.75% senior unsecured notes, due 2013

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Rating Members of Insurance Groups"; "A.M. Best's Ratings & The Treatment of Debt"; "Understanding BCAR for Life and Health Insurers"; and "Equity Credit for Hybrid Securities." Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Gordon McLean, 908-439-2200, ext. 5304
Senior Financial Analyst
gordon.mclean@ambest.com
or
Gerard Altonji, 908-439-2200, ext. 5626
Assistant Vice President
gerard.altonji@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com