CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - AUGUST 02, 2013 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and issuer credit ratings (ICR) to “bbb+” from “a-” for the subsidiaries of Meadowbrook Insurance Group, Inc. (MIGI) (Southfield, MI) [NYSE: MIG], which operate under an intercompany reinsurance pooling agreement. A.M. Best also has downgraded the ICR to “bb+” from “bbb-” for MIGI. The outlook for the FSR has been revised to stable from negative, while the outlook for the ICRs is negative. (See below for a detailed listing of the companies and ratings.) (See below for a detailed listing of the companies and ratings.)
The rating downgrades take into consideration MIGI’s second quarter 2013 earnings announcement and the weaker than anticipated results due in large part to $21.4 million of prior year adverse loss reserve development and $8.2 million of pre-tax losses (on prior years) the result of adverse reinsurance arbitration. In the second quarter of 2013, MIGI reported a net operating loss of $4.4 million.
According to MIGI’s management, $19.8 million of prior year development stemmed from a discontinued territory within the California workers’ compensation line. At the same time, MIGI experienced above average storm losses of $12.9 million in the same quarter and an unexpected loss in an arbitration hearing over ceded losses. The rating actions follow the negative outlook that was assigned to MIGI and its subsidiaries at the time A.M. Best affirmed its ratings in April along with the likelihood of potential negative rating actions if further adverse reserve development occurred.
Due to A.M. Best’s concerns regarding MIGI’s overall reserve adequacy and the potential for future adverse development, the negative outlook on the ICRs has been maintained. This applies to both continued and discontinued lines, which reflects additional concerns A.M. Best has regarding the ultimate development on some of MIGI’s more recent accident years. A.M. Best will continue to monitor MIGI’s capitalization to ensure that it remains within an acceptable range for its current rating level.
Positive rating actions for MIGI are unlikely in the near term. Key factors that could result in further negative rating actions include additional material adverse development in its reserves, prolonged unprofitable underwriting and operating results, a significant or sustained decline in its risk-adjusted capitalization and/or deterioration in its financial strength.
The FSR of A- (Excellent) has been downgraded to B++ (Good) and the ICRs of “a-” to “bbb+” for the following subsidiaries of Meadowbrook Insurance Group, Inc.:
· Star Insurance Company
· Century Surety Company
· Savers Property and Casualty Insurance Company
· ProCentury Insurance Company
· Williamsburg National Insurance Company
· Ameritrust Insurance Corporation
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.