A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B++ (Good) and issuer credit rating to “bb” from “bbb” of Austin Mutual Insurance Co. (Austin Mutual) of Maple Grove, Minn. The outlook for both ratings is negative.
The rating actions reflect Austin Mutual’s poor fourth quarter operating results, whereby underwriting performance and accounting adjustments led to significant declines in surplus well below projected levels. Consequently, risk-adjusted capitalization sharply declined to a level no longer appropriate for a secure rating.
This follows a continuing trend of underwriting losses during the recent five-year period, which were driven by increased frequency and severity of weather-related and automobile liability losses.
Management has begun to execute several aggressive strategic initiatives to improve the company’s underwriting performance. However, despite some improvement in early 2012 results due to milder weather patterns, it remains to be seen whether successful execution of these business plans will materialize into a longer positive trend of profitable results.
As a result, A.M. Best remains concerned with Austin Mutual’s volatile underwriting performance and potential for further erosion of capital, as its business continues to face ongoing exposure to weather-related events and challenging competitive market conditions.
Before the negative outlook is removed, Austin Mutual will need to significantly improve its operating performance and risk-adjusted capitalization.
Further negative rating actions may occur if Austin Mutual’s poor underwriting performance persists in 2012, causing a further deterioration of its risk-adjusted capitalization.
Source: A.M. Best