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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - DECEMBER 12, 2011 12:00 AM (EST)
A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit ratings to "a-" from "a" of Accident Fund Group (Accident Fund) (Lansing, MI) and its members, which include Accident Fund Insurance Company of America and its subsidiaries, Accident Fund General Insurance Company, Accident Fund National Insurance Company, United Wisconsin Insurance Company (New Berlin, WI) and CompWest Insurance Company (CompWest) (San Francisco, CA). All companies are domiciled in Lansing, MI, unless otherwise specified. The outlook for all ratings has been revised to stable from negative.
The rating actions reflect Accident Fund's lackluster underwriting results in recent years, reserve strengthening across prior accident years and its susceptibility to potential further prior-year adverse reserve development, as well as the execution risk associated with its continued expansion in newer states. The group's underwriting performance has deteriorated in more recent years and is expected to remain under pressure over the near term as a result of competitive market conditions, rate reductions and a challenging macroeconomic environment. Additionally, the performance of CompWest (acquired in 2007) has fallen short of expectations and has negatively impacted Accident Fund's overall underwriting results. Furthermore, while the company recorded significant favorable calendar year development on its loss reserves in earlier years, reserves have adversely developed since 2004 with significant strengthening coming from more recent accident years.
The ratings reflect Accident Fund's solid capitalization, historically strong operating performance and expertise within the workers' compensation marketplace. These positive attributes are driven by the organization's disciplined underwriting practices and a steady stream of net investment income generated from its growing invested asset base. Furthermore, the ratings acknowledge Accident Fund's growing use of sophisticated predictive analytic modeling tools and enhanced market profile, which has resulted from the group's geographic diversification strategy, which has mitigated the business profile risks of being focused on a select number of workers' compensation markets. Accident Fund benefits from the operating synergies and access to capital provided by its parent, Blue Cross and Blue Shield of Michigan.
A.M. Best believes Accident Fund is well positioned at its current rating level; however, factors that may lead to negative rating actions include the continued deterioration in its underwriting performance, material reserve strengthening and a significant decline in risk-adjusted capitalization.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Rating Members of Insurance Groups"; "A.M. Best's Ratings & the Treatment of Debt"; "Catastrophe Analysis in A.M. Best Ratings"; "Equity Credit for Hybrid Securities"; "The Treatment of Terrorism Risk in the Rating Evaluation"; and "Understanding BCAR for Property/Casualty Insurers." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.