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 \u201cbbb+\u201d (Good) of Nazareth Mutual Insurance Co., based in Nazareth, Pennsylvania. The outlook of the FSR is stable.<\/p>\n
AM Best said the revised outlook of the Long-Term ICR to negative from stable reflects \u201cincreased volatility\u201d in Nazareth\u2019s operating results in recent years and continuing through third-quarter 2025. \u201cOperating 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 pricing strategies, volatility of key performance metrics remains elevated,\u201d the rating agency stated.<\/p>\n
The outlook further considers the potential impacts regarding the shifting enterprise risk mitigation strategies. AM Best pointed to changes in the reinsurance structures that have \u201cmaterially weakened\u201d risk-adjusted capitalization as measured by Best\u2019s Capital Adequacy Ratio (BCAR) at 99.8% VaR.<\/p>\n
The Credit Ratings reflect Nazareth\u2019s 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).<\/p>\n
AM Best said the strong balance sheet assessment reflects Nazareth\u2019s 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 surplus erosion and material growth in net written premium reported as of year-end 2024.<\/p>\n
Nazareth writes homeowners, landlord, business owners, farm, manufactured homes, identity recovery, and farm insurance policies in Pennsylvania only. Am Best said the limited business profile reflects Nazareth\u2019s geographic concentration in rural Pennsylvania, which exposes earnings and surplus to weather-related events, regulatory risk and competitive market pressures.<\/p>\n
While AM Best said it views the company\u2019s ERM as appropriate for the company\u2019s risk profile, it has concerns regarding the effectiveness of the program given the increased volatility in underwriting results in recent years and growing tail risk.<\/p>\n
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