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 Mutual 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 volatility” in Nazareth’s operating results in recent years and continuing through third-quarter 2025. “Operating performance has deviated from historical no
rms influenced by fire losses, weather-related events and inflationary pressures. While management continues to execute corrective actions including underwriting an
d pricing strategies, volatility of key performance metrics remains elevated,” the rating agency stated.
The outlook further considers the potential impacts regarding the shifting enterprise risk mitigation strategies. AM Best pointed to changes in the reinsur
ance structures that have “materially weakened” 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 its 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 weakened from
prior periods, mainly due to changes in the reinsurance structure in 2025, which followed modest surpl
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us erosion and material growth in net written premium reported as of year-end 2024.
Nazareth writes homeowners, landlord, business owners, farm, manufactured homes, ide
ntity recovery, and farm insurance policies in Pennsylvania only. Am Best said the limited business profile
reflects Nazareth’s geographic concentration in rural Pennsylvania, which exposes earnings an
d 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 ha
s concerns regarding the effectiveness of the program given the increased volatility in underwriting results in recent years and growing tail risk.