Best’s News & Research Service - March 22, 2016 02:27 PM (EDT)
A.M. Best Downgrades Ratings of Western General Insurance Company
Oldwick //BestWire// - A.M. Best has downgraded the financial strength rating to B (Fair) from B+ (Good) and the issuer credit rating to “bb” from “bbb-” of Western General Insurance Company (Western General) (Calabasas, CA). The outlook for both ratings remains negative.
The ratings downgrade and negative outlook are based on a material decline in Western General’s risk-adjusted capitalization in the fourth quarter of 2015 to below a level supportive of its ratings. This decline was driven by deterioration in Western General’s operating performance and policyholders’ surplus.
The ratings and outlook reflect Western General’s fair risk-adjusted capitalization, unfavorable five-year operating results, underwriting volatility, as well as product and geographic concentration. These negative rating factors are partially mitigated by Western General’s conservative investment strategy and long-standing market presence as a niche writer of dealer originated and agent/broker produced non-standard private passenger auto business, primarily in California, where it wrote 75% of its business, and Texas, where it wrote 22% of its business.
Western General’s unfavorable five-year operating performance has been driven by underwriting volatility that caused considerable surplus erosion in 2011, 2012 and 2015. Negative rating factors also include a geographic and product concentration of risk, an elevated expense position and increased adverse loss reserve development in recent calendar years. Furthermore, as a California-predominant automobile writer with limited market penetration, Western General is subject to competitive pressures from multi-line carriers, as well as judicial, regulatory and economic pressures.
In addition to the aforementioned positive rating factors, management’s recent strategic initiatives are designed to improve profitability through the implementation of underwriting and operational strategies, all of which are in place. While these initiatives may help to improve profitability through the underwriting, selection and pricing of its risks, as well as increased operating efficiencies, the ultimate effectiveness remains uncertain.
As the company’s rating outlook is negative, key rating drivers that could lead to a rating downgrade include a material loss of surplus or continued underwriting volatility, similar to what occurred during the past five-year period. Key rating drivers that could produce a revision in the rating outlook to stable include sustained improvement in underwriting, operating profitability and risk-adjusted capitalization.
This press release relates to rating(s) 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.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.