A.M. Best Co. has downgraded the issuer credit rating (ICR) to “bbb” from “bbb+” and affirmed the financial strength rating (FSR) of B++ (Good) of Wolverine Mutual Insurance Co. of Dowagiac, Michigan.
The rating agency’s outlook for the FSR has been revised to negative from stable, and the outlook for the ICR is negative.
A.M. Best said that the ratings reflect Wolverine’s favorable gross underwriting performance and well-established market presence in Michigan and Indiana.
However, offsetting these positive rating factors are the company’s marginal capital position, driven by substantial surplus losses (over 20 percent) in 2008, above average leverage ratios and below average net operating performance in comparison to its industry composite. A.M. Best said its current outlook is driven by Wolverine’s suppressed earnings and continued sub-industry performance.
While the company has favorable gross underwriting performance due to its aggressive efforts to reduce its risk concentrations through agency management and spreading its geographic exposure, coupled with price realignment, rate increases and insurance-to-value initiatives, these improvements have failed historically to translate into substantial net underwriting gains that would decrease leverage ratios and substantially add to capital at a rate greater than current premium growth, according to A.M. Best. In 2009, Wolverine has re-cast its working layer reinsurance program with the goal of capturing more of these profits on a net basis.
Wolverine’s predominantly property business continues to subject its
surplus to wind/hail and winter storm losses and unexpected loss frequency spikes that, in 2008, caused marked surplus losses. This volatility is only exacerbated by the company’s above average expense ratio, high underwriting leverage, as well as its lessened, but continued geographic concentration, A.M. Best added.
Wolverine has mitigated this exposure by securing reinsurance coverage that lowers its probable maximum loss to a manageable level. Despite this, Wolverine has generally proven able to produce positive operating returns as a personal lines writer despite the uncertainty of weather conditions inherent within its region. The company’s results remain below those of its industry composite, according to A.M. Best.
Source: A.M. Best
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