MARCH 16, 2023 03:20 PM (EDT)
AM Best Removes From Under Review With Negative Implications, Downgrades Credit Ratings of Rockingham Ins Co and Affiliates
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FOR IMMEDIATE RELEASE
OLDWICK - MARCH 16, 2023 03:20 PM (EDT)
AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings to “a-” (Excellent) from “a” (Excellent) of Rockingham Insurance Company and its pooled affiliates: Rockingham Casualty Company and Rockingham Specialty, Inc. The outlook assigned to these Credit Ratings (ratings) is negative. All companies are domiciled in Harrisonburg, VA, and collectively are referred to as Rockingham Group.
These ratings reflect Rockingham Group’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The rating downgrades reflect deterioration in underwriting and operating results over the past three years that no longer support the adequate operating performance assessment. Rockingham Group’s underwriting performance has been impacted negatively by losses from its commercial and specialty program business, weather-related events and increased loss severity in their homeowners and auto physical damage books of business. The increased severity was due partly to higher inflation and supply chain issues. Additionally, the group’s underwriting results also has been pressured further by its elevated expense ratio, primarily driven by its higher commission structure and investment in technology. The elevated commission costs resulted from the use of independent agents and managing general agents. Management has implemented several measures to improve underwriting performance, including the withdrawal from its commercial lines business in Virginia and Pennsylvania and targeted rate increases. The commercial book of runoff business received regulatory approval and is expected to last until early 2024.
The balance sheet assessment is currently supported by the group’s very strong level of risk-adjusted capitalization, as measured by Best Capital Adequacy Ratio (BCAR) as a result of a recent capital infusion of $15 million from the issuance of 20-year floating rate surplus notes.
However, the outlooks still were assigned as negative to reflect the mounting pressures on the group’s balance sheet strength due to its elevated net and gross underwriting leverage metrics, adverse loss and loss adjustment reserve development and elevated reinsurance dependence. Additionally, the negative outlooks reflect AM Best’s concerns regarding the successful execution of Rockingham Group’s plan to run off its commercial lines book of business and corresponding demonstrated improvement in operating results over the intermediate term. The absence of meaningful improvement could result in a downward revision to the group’s current business profile assessment of neutral.
This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore, and Mexico City.