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S&P Lowers Millers Insurance/Millers Cas. Rtg to 'Bpi'

18 September 2000

S&P Lowers Millers Insurance/Millers Cas. Rtg to 'Bpi'

    NEW YORK--Standard & Poor's CreditWire--Sept. 18, 2000--Standard & Poor's today lowered its financial strength rating on The Millers Insurance Co. (Millers Insurance) (formerly The Millers Mutual Fire Insurance Co.) and its related pool member, The Millers Casualty Insurance Co. (TX) (Millers Casualty), to single-'Bpi' from double-'Bpi'.
    Key rating factors include continued weak net underwriting results, a decline in surplus of nearly 70%, stock market equity exposure, volatile reserve levels, and a marginal Standard & Poor's capital adequacy ratio.
    The rating is based on an interaffiliate pooling arrangement, in which Millers Casualty cedes 100% of its direct written premiums, losses, and loss adjustment expenses, excluding Florida homeowners, to Millers Insurance, which then retrocedes 14.13% of the retained business back to Millers Casualty.
    The Millers Insurance Co. mainly writes auto and general liability coverages for agriculture-related businesses, and its products are distributed primarily through managing general agents. The company, based in Fort Worth, Texas, began business in 1898. In January 1999, it obtained permission from the Texas insurance commissioner to convert from a mutual to a stock company and distribute capital stock to its policyholders in exchange for their membership rights.

    Major Rating Factors:

	   --  Millers Insurance Co.'s five-year average return on revenue of
        negative 19.0% is considered weak. Underwriting profitability
        continues to be poor, as is evident from a five-year average
        operating ratio of 120.1%. These poor returns contributed to
        the company's decision in 1999 to hire a new Chairman and
        Chief Executive Officer, institute expense reductions, and
        refocus on its historically more profitable commercial lines
        business.

	   --  The company's $20.6 million drop in net income in 1999 was
        caused primarily by a $28.2 million drop in net realized
        capital gains, offset by a $7.0 million improvement in net
        underwriting income.

	   --  The company's surplus, which stood at $34.6 million at
        year-end 1999, has registered a negative compound annual
        growth rate (of negative 8.7%) since 1992. The $79.7 million
        (69.7%) drop in surplus in 1999 comprised a net unrealized
        capital loss of $54.8 million, a $15.3 million loss in net
        income, a $7.0 million payment in stockholder dividends, and
        $2.6 million in all other.

	   --  The company's 1999 affiliated common stock leverage is high,
        at 114.9% of policyholders surplus. Net unrealized capital
        gains were negative $54.8 million at year-end 1999.

	   --  The company's two-year reserve development ratio has been
        volatile, averaging 12.6% deficient since 1995. The reported
        ratio has ranged from 4.1% deficient to 31.0% deficient in the
        last five years. This results from the company's decision to
        discontinue certain unprofitable lines and strengthen
        reserves.

	   --  Capitalization remained marginal at year-end 1999, as
        indicated by a Standard & Poor's capital adequacy ratio of
        80.2%. In addition, the company was more leveraged than
        similar companies, with its net premiums written plus
        liabilities to surplus at more than 4.7 times.

    Millers Insurance (NAIC: 23531) is a member of Millers American Group Inc. , a midsize insurance group with 1999 surplus in excess of $80 million. The Millers Insurance Co. wholly owns Millers Holding Corp. which, in turn, owns 99.51% of The Millers Casualty Insurance Co. (TX) (NAIC:23523).
    The group also includes Phoenix Indemnity Insurance Co. (NAIC: 34037) (financial strength rating single-'Bpi'), which was acquired in September 1999, and The Millers Direct Insurance Co. (NAIC: 20150), which was purchased in September 1997 and remains unrated due to the lack of any current business activity.
    'pi' ratings, denoted with a 'pi' subscript, are insurer financial strength ratings based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. 'pi' ratings are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a 'pi' subscript are not subject to potential CreditWatch listings.
    Ratings with a 'pi' subscript generally are not modified with 'plus' or 'minus' designations. However, such designations may be assigned when the insurer's financial strength rating is constrained by sovereign risk or the credit quality of a parent company or affiliated group, Standard & Poor's said. -- CreditWire.