A.M. Best Downgrades Springfield Fire & Casualty Ratings

A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit rating to “a-” from “a” of Springfield Fire & Casualty Co. of Springfield, Ill. The outlook for both ratings has been revised to stable from negative.

The rating downgrades of Springfield reflect the deterioration in its operating results in 2009 and 2010, the adverse loss reserve development reported in 2010, and more importantly, the execution risk and challenges brought on by the recent change in ownership, management and the shift in the company’s overall strategic direction.

The rating actions also consider the company’s expense ratio disadvantage driven by the high commissions paid to its immediate parent and managing general agent, Special Insurance Services Inc.

Other factors include Springfield’s significant reduction in surplus since being acquired in 2009, management’s planned product expansion coupled with near-term growth initiatives and its ability to execute on them in light of today’s competitive market pressures.

Despite these actions, the ratings reflect Springfield’s historic profitability, niche underwriting expertise, moderate underwriting leverage and the improved financial leverage at Specialty Risk of America LLC, the ultimate parent company.

The revised outlook recognizes the action plans implemented by Springfield’s management in 2009 and 2010 and the guidance provided by management, which reflects the projected benefits from these actions via lower loss costs, reduced expenses and new business revenues.

In light of these broad changes, the continuation of a stable outlook is contingent on Springfield’s near-term progress and management’s success in reversing the recent adverse trends in profitability and capitalization.

Source: A.M. Best

Topics AM Best Casualty