Best’s News & Research Service - April 04, 2023 08:28 AM (EDT)
AM Best Downgrades Credit Ratings of Western Mutual Insurance Pool’s Members
- April 04, 2023 08:28 AM (EDT)
Oldwick //BestWire// - AM Best has downgraded the Financial Strength Rating to A (Excellent) from A+ (Superior) and the Long-Term Issuer Credit Rating to “a+” (Excellent) from “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 outlook of these Credit Ratings (ratings) has been revised to stable from negative.
The ratings reflect Western Mutual’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The rating downgrades reflect recent volatility in Western Mutual’s underwriting performance that deviates from historic profitability, with recent results aligning closer to adequate expectations. This volatility has primarily been influenced by escalating water losses and limitations from the group’s legacy policy administration platform. Only one year, specifically 2021, was significantly impacted by above average storm losses from Western Mutual’s Texas portfolio. Management responded with stricter underwriting rules, greater attention to water loss mitigation and a more focused push for rate adequacy coupled with the recent launch of a new policy administration platform that is expected to improve the pool’s pricing ability.
The stable outlooks reflect AM Best’s expectation that recent corrective actions will take hold in the near term, leading to more consistent results and an improved quality in Western Mutual’s risk portfolio. Despite a marginal decline in surplus, key balance sheet metrics such as underwriting leverage, reserve leverage, liquidity, and risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, remain in favorable positions. The group’s business profile remains favorable considering the well-established distribution channels that leverage direct sources, effective construction of a portfolio that limits wildfire losses, as well as recent enhancements to the policy administration platform that is expected to improve data analysis and quoting. The group’s ERM remains appropriate, inclusive of a formalized program with distinct risk appetites and a prudent reinsurance program to partially mitigate shock losses.
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.