Best’s News & Research Service - February 23, 2023 09:33 AM (EST)
AM Best Downgrades Issuer Credit Rating of Wolverine Mutual Insurance Company
- February 23, 2023 09:33 AM (EST)
Oldwick //BestWire// - AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” (Good) from “bbb+” (Good) and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Wolverine Mutual Insurance Company (Wolverine) (Dowagiac, MI). The outlook of the FSR has been revised to negative from stable while the outlook of the Long-Term ICR is negative.
These Credit Ratings (ratings) reflect Wolverine’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 Long-Term ICR downgrade reflects deterioration in the company’s underwriting and operating results over the past three years to a level that no longer supports an adequate operating performance assessment. These underwriting results have been impacted negatively by the increased number of large homeowner and dwelling fire losses, rising auto physical damage severity and to a lesser extent weather-related events. Additionally, Wolverine’s underwriting losses resulted from the decline in written and earned premiums from the reduced number of its policies in-force due to heightened competitive pressures from new entrants into the Michigan private passenger auto and homeowners’ marketplace. The company’s underwriting results have been further pressured by its elevated expense ratio relative to its peer composite, driven by higher system conversion and other overhead costs.
While management has implemented several initiatives to improve performance, including targeted rate changes, more appropriate classification of auto risks and increased roof inspections, volatility in underwriting results remains elevated.
The negative outlooks reflect the declines in policyholder surplus over the last two years and corresponding drop in overall risk-adjusted capitalization. Further pressuring the balance sheet strength is Wolverine’s elevated net and gross underwriting leverage metrics, and reinsurance dependence, as measured by ceded leverage and increased net catastrophe retention in 2023. Wolverine’s business profile assessment of limited reflects its geographic concentration in Michigan, which creates susceptibility to frequent and severe weather-related events, adverse judicial decisions and changes in the Michigan Catastrophic Claims Association guidelines. Although AM Best views the company’s ERM practices as appropriate for its risk profile, there is some concern about the successful outcome of management initiatives to return to operating profitability, and organically grow surplus which may weaken this assessment in the future.
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.