Mutual Service Casualty Ratings Lowered

Standard & Poor’s lowered its counterparty credit and financial strength ratings onMutual Service Casualty Insurance Co. (MSC) of St Paul, Minn., to single-“Bpi” from triple-“Bpi” because of the companies’ rise in net leverage, decline in surplus, and weak profitability and liquidity.

MSC writes personal and commercial automobile, homeowners, inland marine, fire and allied lines, and commercial general liability insurance. Business in the company’s major states of operations-Minnesota, New York, North Carolina and California-constitutes about 60 percent of its total revenues. Its products are distributed primarily through direct marketing and brokers.

MSC’s capitalization declined in 2001. Its five-year average ROR is considered very weak. The drop in net income of $13.2 million in 2001 compared with the prior year was caused primarily by a decline of $14.9 million in net underwriting income, a drop of $2.2 million in net investment income earned, and an improvement of $4.2 million in net realized capital gains. The company’s liquidity is weak.

MSC is geographically well diversified, with less than one-third of the company’s net premiums written in its largest state, Minnesota.

Although the company operates under an alliance with Country Companies, it is rated on a stand-alone basis.

MSC, which began business in 1919, is licensed in 48 states, the District of Columbia, and Puerto Rico. The company is a member of Mutual Service Insurance Group. The group has recently expanded its participation in a strategic alliance with the Country Companies Insurance Group. Effective July 2001, MSC began ceding 100 percent of its premium and loss and loss expenses to Country Mutual Insurance Co., the lead company of the Country group while retaining exposure for credit risk and certain asbestos and environmental exposure.