Press Release - NOVEMBER 20, 2018

A.M. Best Downgrades Credit Ratings of Protective Insurance Corporation and Its Subsidiaries


CONTACTS:
 Jieqiu Fan
Senior Financial Analyst
+1 908 439 2200, ext. 5372
jieqiu.fan@ambest.com

Susan Molineux
Associate Director
+1 908 439 2200, ext. 5829
susan.molineux@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - NOVEMBER 20, 2018
A.M. Best has downgraded the Financial Strength Rating to A (Excellent) from A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a” from “aa-” of Protective Insurance Company (PIC) and its wholly owned subsidiary, Sagamore Insurance Company (Sagamore). These companies are collectively referred to as Protective Insurance Corporation Group (the group). Concurrently, A.M. Best has downgraded the Long-Term ICR of the organization’s publicly traded ultimate parent, Protective Insurance Corporation, to “bbb” from “a-”. The outlook for all of these Credit Ratings (ratings) remains negative. All companies are domiciled in Carmel, IN.

The downgrade follows the third quarter earnings release by Protective Insurance Corporation that shows a third quarter net loss of $12.3 million, driven by a reserve strengthening of $16.4 million. This marks the third consecutive year that the company had material adverse loss development.

The ratings reflect the group’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. Despite posting sub-100% combined ratio in most years, the group’s underwriting profitability has been declining as increased loss costs have led to a continuation of material adverse loss reserve development. While the group’s commercial auto loss ratios have outperformed the commercial auto composite, increased severity due to increased litigation and slower claims settlements poses serious challenges over the near term. The management team, under the direction of the new interim CEO, just recently completed a formal review of its business and is in the process of taking much needed rate on its leading line of business. As part of this process, management will be exploring the use of facultative reinsurance and will be shifting its limits profile.

The negative outlook reflects the challenges the company is facing in a sector with continuing rising loss cost trends as it strives to turnaround its operations, rein in future adverse reserve development, stabilize earnings and maintain its balance sheet at the very strong level. A.M. Best expects management to continue implementing the current strategy of taking much needed rate on its book of business, which may reduce the company’s growth. The turnaround in financial results could take 1-2 years to take hold. In the meantime, there could be some additional adverse reserve development. The company’s current reinsurance program, in particular the aggregate stop loss, should provide some benefit against additional deterioration.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.


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