A.M. Best Revises Outlook to Negative for New York’s Country-Wide

July 12, 2017

A.M. Best has revised its outlook to negative from stable for Country-Wide Insurance Company, a family-owned auto insurance company based in New York, N.Y.

A.M. Best also affirmed Country-Wide’s Financial Strength Rating of C+ (marginal) and its Long-Term Issuer Credit Rating of b-, ratings the company has held for the past five years, according to A.M. Best’s credit report on the company.

The revised outlooks are due to Country-Wide’s continued decline in risk-adjusted capitalization as a result of its reserve strengthening efforts, according to a release issued by A.M. Best regarding the change. Although Country-Wide has increased all accident year reserves in an effort to curb continuing negative reserve development trends, this has driven its recent drop in surplus, the release added.

Country-Wide is a property and casualty insurance company licensed in New York. The company’s major lines of business are low limits, automobile liability and automobile physical damage for private passenger and commercial vehicles in New York City, primarily in Brooklyn and Queens. The company’s business is generated through brokers within the five boroughs of New York City and Long Island.

In 2000, Country-Wide also began operating its wholly owned, full-service general agency, National City Service Agency (NCSA). The agency has a reputation for a growing and active network of sub-brokers throughout various neighborhoods and counties in New York City and its suburbs.

All of Country-Wide’s agents, representatives, underwriters and adjusters live in the tri-state area in and around New York City, according to the company’s website. Because of this, Country-Wide’s profile remains limited since it is a single-state writer with a concentration in the five major boroughs of New York City, A.M. Best’s credit report stated. Since the company’s underwriting risks are concentrated geographically and by line of business, it is more susceptible to regulatory risk and competitive market pressures, the report added.

Country-Wide’s risk-adjusted capitalization, measured by Best’s Capital Adequacy Ratio (BCAR), has shown deterioration over the last couple of years, driven mainly by its adverse reserve development, the credit report said. Because of the company’s high reserve leverage, its balance sheet is sensitive to strengthening efforts focused on improving loss reserve adequacy. Despite this, the company has continued its efforts to strengthen reserves through significant increases in the last three years combined with reorganizing reserving practices, the report said.

Additionally, automobile fraud on no-fault claims has continued to challenge the company’s reserve development trends despite management’s investigations and pursuit of no-fault claims settlements, as well as a prior mandate by New York regulators that unsettled claims are reserved for. This practice has changed as of April 2013, and after a grace period, denied claims can be closed without any reserve consequences, the report stated.

Another concern the report outlined is that the company has a focus on non-standard automobile lines, which the report explained are traditionally volatile and plagued with fraud. However, A.M. Best did find the company is invested in technology, which can streamline underwriting and claims processes and limit fraud.

Indeed, Country-Wide uses data-mining efforts and updated technological advancements to help with its anti-fraud metrics and holds a conservative investment portfolio, according to A.M. Best’s credit report. The company has protocols in place to identify suspected abusive or fraudulent PIP claims and uses Independent Medical Examinations (IME) and Examinations under Oath (EUO) of both healthcare providers and injured parties when warranted. It also employs in-house legal counsel trained to deal with fraud issues.

In addition, Country-Wide’s other income, when combined with its net investment income, has been able to offset some of its underwriting losses and allow it to maintain competitive rates in some years, the release added. This is because of the company’s ability to charge fee income, its implementation of a series of filed rate increases, and its diversification of covered risks within the automobile insurance sphere, according to the release.

In the future, A.M. Best plans to continue closely monitoring the company’s loss reserves due to its high reserve leverage and the change in regulators’ handling of certain claims, the credit report said.

Positive rating action will depend on improved risk-adjusted capitalization and loss reserve adequacy, the release stated, adding that negative rating action is also possible if risk-adjusted capitalization further declines.

A.M. Best does not comment beyond the information outlined in its press releases due to a continuing interactive rating relationship. A representative from Country-Wide Insurance Company declined to comment.

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