Issuer Credit Rating Outlook for Wisconsin County Mutual Group Downgraded

A.M. Best says it has revised the outlook to negative from stable for the long-term issuer credit ratings (Long-Term ICR) and affirmed the financial strength rating (FSR) of B++ (Good) and the long-term ICRs of “bbb+” of Community Insurance Corp. and Wisconsin County Mutual Insurance Corp., collectively referred to as the Wisconsin County Mutual Group (WCMG).

The outlook for the FSR remains stable. Both companies are domiciled in Madison, Wisconsin.

The negative outlook on the Long-Term ICRs reflects WCMG’s reported operating losses over the past two and a half years that resulted in a lower risk-adjusted capitalization and a decline in surplus.

The operating losses primarily were due to underwriting losses driven by adverse loss reserve development on several workers’ compensation claims and large liability losses.

The ratings reflect the group’s strong risk-adjusted capitalization, albeit declining, and local expertise within the Wisconsin municipal risk market.

WCMG’s positive rating factors primarily are driven by its net investment income, which has partially offset underwriting shortfalls in two of the last five years.

Net investment income is derived from the group’s well-diversified investment portfolio, which has generated a steady stream of investment income and favorable realized and unrealized capital gains over this period. Although management adheres to strict loss control and risk management services that mitigate potential losses and benefits from Wisconsin’s tort laws that cap large settlements, the group is susceptible to civil rights cases that are heard in federal courts where there are no limits on jury verdicts.

Partially offsetting these positive rating factors is the group’s volatile underwriting results and lackluster operating performance. As a result, the group’s five-year average pre-tax and total returns on revenue and equity compare unfavorably with the commercial casualty composite. In addition, operating earnings are dampened by dividend requirements that have averaged approximately 7.5 points to the combined ratio over the last five years.

Furthermore, while policy limits and reinsurance curb the group’s overall federal claim exposure, significant legal defense expenses associated with claims have dramatically increased loss-adjustment expenses during this period.

Source: A.M. Best

Topics Trends Profit Loss Wisconsin