A.M. Best has downgraded the financial strength rating of Calif.-based Springfield Insurance Co., a carrier focused on workers’ compensation.
The financial strength downgrade was to B- (Fair) from B (Fair) and the issuer credit rating was dropped to “bb-” from “bb+.” The outlook for the FSR has been revised to negative from stable, while the outlook for the ICR is negative, according to A.M. Best.
The ratings reflect “the significant weakening in Springfield’s risk-adjusted capitalization” resulting from ongoing negative operating results and an unexpected decrease in its deferred tax asset in 2013, A.M. Best stated.
“Springfield also has a large premium dependence on California workers’ compensation, where pricing and regulatory reform volatility can cause adverse results,” A.M. Best stated. “The negative outlook reflects A.M. Best’s concern that Springfield will be challenged in the near term to significantly improve its earnings to the levels seen prior to 2012.”
Since 2012 Springfield’s underwriting results and risk-adjusted capitalization have deteriorated from adverse loss reserve development across a number of accident years along with increasing premium volume, and according to A.M. Best this has stressed capitalization along with deteriorating operating results.
Surplus also was negatively impacted by a decrease in the DTA, with surplus declining by 25 percent in 201, much than A.M. Best said it had anticipated.
Springfield’s management has taken steps to improve both rate and loss reserve adequacy, and the carrier continues its conservative investment philosophy and reports positive cash flows from operations, according to A.M. Best.
Springfield is a subsidiary of Unified Grocers Insurance Services, and was founded in 1966 to provide workers compensation insurance for Unified’ s member stores in California.
According to the California Department of Insurance, the carrier’s lines of business include: automobile; boiler and machinery; burglary; common carrier liability; disability; fire; liability; marine; plate glass; surety; and workers’ comp.
A.M. Best warned that the ratings could be further downgraded if the company continues to experience weakened underwriting and operating results, material adverse loss reserve development or capital adequacy continues to decline.