View this article online: https://www.insurancejournal.com/news/east/2023/03/31/714609.htm
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Northern Neck Insurance Co. of Irvington, Virginia.
AM Best said the revision of the outlooks to negative from stable reflects pressure on Northern Neck’s overall operating performance due to increased volatility in recent years that puts pressure on its assessment. Northern Neck writes mutual assessment insurance in Virginia.
According to the ratings agency, over the most recent five-year period, the company has experienced volatile weather-related events, severe fire losses and deterioration in the auto book of business, most notably in 2022.
AM Best added that the negative outlooks further reflect erosion in Northern Neck’s overall balance sheet strength in 2022, marked by a material decline in capital and subsequent decline in risk-adjusted capitalization. Adverse loss reserve development continues, which unfavorably impacts the company’s operating performance results and overall balance sheet strength, according to the ratings firm.
As a result of its single-state property predominate book of business with correlating lines of risk, Northern Neck is exposed to frequent and severe weather-related events and competitive market pressures, AM Best noted.
AM Best noted that the company’s management has outlined several corrective measures, including rate increases, tightened underwriting guidelines, and mitigation initiatives, as well as agency management efforts.
Credit Ratings
The ratings agency said the Excellent credit ratings reflect Northern Neck’s balance sheet strength, which its analysts assess as “very strong,” as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
AM Best said Northern Neck’s balance sheet strength reflects the “strongest level of risk-adjusted capitalization,” as measured by Best’s Capital Adequacy Ratio (BCAR), and surplus growth in eight of the past 10 years, which has relied on investment earnings to offset increased underwriting volatility in recent years.
AM Best said it views the insurer’s ERM as appropriate for its risk profile, supported by the company’s developed framework and risk management capabilities.
Background
The company was originally chartered in1896. In 1987, the company changed its name from The Northern Neck Mutual Fire Association of Virginia to Northern Neck Insurance Co.
According to its website, Northern Neck has approximately 50,000 member policyholders. Each member agrees to pay a pro rata share of all losses or damages sustained, expenses of operation, and the maintenance of adequate surplus.
Assessment rates are charged based upon classification and location of the risks and are levied annually in advance. They are not collected for periods in excess of one year.
The company writes policies for dwelling fire, lightning, extended coverage, broad forms special coverage, homeowners, including mobile homeowners and rural estate, umbrella, automobile physical damage, and automobile liability on an annual basis only. It partners with about 160 independent agents.
According to a Virginia Insurance Bureau examination, the insurer reported earned premiums of $59 million and underwriting losses of $3.9 million in 2020.