Best’s News & Research Service - March 10, 2022 08:48 AM (EST)
AM Best Revises Outlooks to Negative for Western Mutual Insurance Pool’s Members
- March 10, 2022 08:48 AM (EST)
Oldwick //BestWire// - AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” (Superior) of Western Mutual Insurance Pool’s members, Western Mutual Insurance Company, Residence Mutual Insurance Company and Arizona Home Insurance Company (Scottsdale, AZ) (collectively referred to as Western Mutual). All companies are domiciled in Irvine, CA unless otherwise specified.
The Credit Ratings (ratings) reflect Western Mutual’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The negative outlooks reflect deterioration in Western Mutual’s operating performance in recent years to levels no longer commensurate of the strong assessment. The company has been challenged by volatile water losses and severe weather-related events, which have impacted results negatively. Most recently, the company suffered material losses from three Texas storms, namely Winter Storm Uri and two wind and hail events in April. Furthermore, the company has been in some ways constrained by a legacy system that does not provide the desired granularity in regard to rate-making algorithms. Management has outlined corrective measures, which include stricter underwriting guidelines, rate increases and loss prevention initiatives, as well as the anticipated launch of a new underwriting system in the near future.
Western Mutual’s balance sheet strength continues to be supported by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), consistent surplus growth, strong liquidity metrics and generally favorable loss reserve development. The business profile remains favorable considering the well-established distribution channels that include both direct and independent agents and a well-crafted portfolio that has mitigated wildfire risk effectively in recent years, despite elevated activity in California. ERM remains appropriate, inclusive of a formal set of identified risks, prudent wildfire underwriting requirements and catastrophe reinsurance intended to protect the balance sheet partially from severe weather-related events.
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.