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OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has revised the outlooks to negative from stable and
affirmed the Financial Strength Rating of A+ (Superior) and the
Long-Term Issuer Credit Ratings of “aa-” of the members of Andover
Companies Pool (Andover), which consists of Merrimack Mutual Fire
Insurance Company and its majority-owned subsidiary, Bay State Insurance
Company, and its affiliate, Cambridge Mutual Fire Insurance Company. All
companies are domiciled in Andover, MA.

The ratings reflect Andover’s balance sheet strength, which AM Best
categorizes as very strong, as well as its strong operating performance,
favorable business profile and appropriate enterprise risk management

The negative outlooks reflect deviation from the historically strong
operating performance, as well as fluctuations in risk-adjusted
capitalization, which collectively have been impacted by unfavorable
assumed loss and equity activity in recent periods. Andover has recorded
multiple years of depressed operating performance that have not
materially outperformed the composite as in years past. The more modest
results have been impacted by severe weather-related events from direct
and assumed risk exposures. Andover has participated strategically in
assumed catastrophe property treaties for many years, several of which
have improved overall performance. However, the past few years have
deteriorated due to an increase in assumed losses specifically driven by
a greater frequency of events including hurricanes hitting the southeast
coast, wildfires in California and foreign typhoons. Furthermore, more
severe winter weather on the pool’s direct book has elevated losses in a
few years. Throughout the past five-year period, material net investment
income derived from the pool’s considerable equity portfolio has helped
partially offset underwriting volatility. While the dividend income from
equities has assisted operating performance, it exposes the pool’s
capital to shifts in the market as evidenced by the fourth quarter of
2018, which recorded sizable unrealized capital losses. Although the
equity position rebounded in 2019, the magnitude of the volatility
places pressure on overall balance sheet strength.

The balance sheet strength reflects Andover’s very strong risk-adjusted
capitalization, low underwriting leverage and consistently favorable
loss reserve development. Historically, operating performance has
outperformed the composite more consistently. Business profile considers
the pool’s market position, historically beneficial geographic
diversification from the assumed book, and continued efforts to develop
a high-quality book of business through automated and analytical
enhancements. ERM is considered appropriate for the pool’s risk profile.

This press release relates to Credit Ratings that have been published
on AM Best’s website. For all rating information relating to the release
and pertinent disclosures, including details of the office responsible
for issuing each of the individual ratings referenced in this release,
please see AM Best’s
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Best’s Credit Ratings
. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view
for Media – Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases

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Christopher Draghi
Senior Financial Analyst
908 439 2200, ext. 5043

[email protected]

Michelle Baurkot
+1 908 439 2200,
ext. 5314

[email protected]

Christopher Sharkey
Manager, Public Relations
908 439 2200, ext. 5159

[email protected]

Jim Peavy
Director, Public Relations
+1 908
439 2200, ext. 5644

[email protected]