Best’s News & Research Service - May 05, 2022 09:21 AM (EDT)
AM Best Downgrades Credit Ratings of Members of Wisconsin Reinsurance Group
- May 05, 2022 09:21 AM (EDT)
Oldwick //BestWire// - AM Best has downgraded the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Ratings to “bbb-” (Good) from “bbb” (Good) of Wisconsin Reinsurance Corporation and 1st Auto & Casualty Insurance Company (1st Auto), collectively referred to as Wisconsin Reinsurance Group (WRG) (Madison, WI). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect WRG’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
The rating downgrades reflect deterioration in underwriting and operating results, which has been impacted negatively by weather-related events in the group’s core business providing reinsurance to client companies, and to a lesser extent, ongoing weak performance in the auto book of business written on a direct basis through 1st Auto. Management has outlined several corrective measures to improve performance, including significant premium rate increases, and client reviews with remediation expectations, as well as agency management initiatives and enhanced pricing sophistication in 1st Auto.
The negative rating outlooks reflect AM Best’s concern regarding the effectiveness of WRG’s exposure management initiatives given the recent trend in underwriting losses, which have impacted risk-adjusted capitalization negatively. Due to the group’s inability to stabilize results, as reflected by surplus declines reported in four out of the past five years, risk management capabilities have been brought into question. While AM Best expects some improvement in the near term, failure to execute strategic plans successfully is likely to result in further negative rating actions due to continued pressure on the group’s ERM and balance sheet. The balance sheet assessment is supported currently by the strongest level of risk-adjusted capitalization, as measured by Best Capital Adequacy Ratio (BCAR), somewhat offset by surplus declines in recent years, with the most notable in 2021. Further pressuring the balance sheet strength are the group’s elevated net and gross underwriting leverage metrics, and reinsurance dependence, as measured by ceded leverage and net catastrophe retention. The business profile assessment reflects WRG’s geographic concentration in the Midwest, which creates susceptibility to severe weather-related events that are mitigated partially through its comprehensive reinsurance program.
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.