AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (ICR) and affirmed
the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Nazareth Mutua
l Insurance Co., based in Nazareth, Pennsylvania. The outlook of the FSR is stable.
AM Best said the revised outlook of the Long-Term ICR to negative from stable reflects “increased volati
lity” in Nazareth’s operating results in recent years and continuing through third-quarter 2025. “Operating performance
has deviated from historical norms influenced by fire losses, weather-
related events and inflationary pressures. While management continues
to execute corrective actions including underwriting and pric
ng strategies, volatility of key performance metrics remains elevated,” the rating agency stated.
The outlook further considers the potential impacts regardin
g the shifting enterprise risk mitigation strategies. AM Best pointed to
changes in the reinsurance structures that have “materially weakened”
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risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) at 99.8% VaR.
The Credit Ratings reflect Nazareth’s balance sheet strength, which AM Best assesses as strong, as well as i
ts adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
AM Best said the strong balance sheet assessment reflects Nazareth’s very strong risk-adjusted capitalization as measured by BCAR, although weaken
ed from prior periods, mainly due to changes in the reinsurance structu
re in 2025, which followed modest surplus erosion and material growth in net written premium reported as of year-end 2024.
Nazareth writes homeowners, landlord, business owners, farm, manufactured homes, identity recovery, and far
m insurance policies in Pennsylvania only. Am Best said the limited b
usiness profile reflects Nazareth’s geographic concentration in rural Pennsylvania, which exposes earnings and
surplus to weather-related events, regulatory risk and competitive market pressures.
While AM Best said it views the company’s ERM as appropriate for the company’s risk profile, it has concerns regarding the effectiveness of the program given t
he increased volatility in underwriting results in recent years and growing tail risk.