A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit rating to “bbb” from “a-” of Michigan Commercial Insurance Mutual (MCIM) in Lansing, Mich. The outlook for both ratings has been revised to stable from negative.
Best said there has been significant deterioration in MCIM’s operating performance, which was driven by an increase in its underwriting losses (attributable to diversification initiatives beyond Michigan), an increase in claim frequency and large loss activity and the continued execution risk associated with its geographical expansion plans.
Despite MCIM management’s initiatives to diversify into lower hazard classes of business, underwriting performance remains weak due to poor agent and individual account performance, diversification initiatives at a time when competitive market conditions have reduced rates, according to the ratings agency.
The costs associated with expansion initiatives have increased the underwriting expense ratio to a level well in excess of MICM’s peer composite, Best said.
While MCIM’s management has identified initiatives intended to improve results, the company will be challenged over the near term to meet projections given the competitive market conditions and the economic impact on its core business segments.
Irrespective of these challenges, the outlook recognizes MCIM’s continued solid capitalization that should support projections for an ongoing weak performance and the risks associated with the company’s changing book of business.
Source: A.M. Best
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