Credit Ratings of Illinois’ Governmental Interinsurance Exchange

November 8, 2018

A.M. Best has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Rating to “a-” from “a” of Governmental Interinsurance Exchange (GIE) in Bloomington, Illinois. The outlooks of these Credit Ratings (ratings) remain stable.

The ratings reflect GIE’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

The rating actions reflect GIE’s limited business profile, which is based on its moderate to high risk product lines and geographic risk concentration in Illinois. Due to the company’s stringent underwriting standards, premium volume has declined substantially in recent years due to discontinued operations.

Management will remain challenged to supplement lower premiums given the current strategy to improve the business mix to ensure that its pool of insured local governments has homogeneous exposures to loss and similar commitments to risk management.

GIE is a public entity risk pool formed as a reciprocal insurance company to provide certain property/casualty insurance coverages and related services exclusively to a small select group of participating local public entities. This concentrated exposure is mitigated partially by management’s strict underwriting discipline and extensive knowledge of local government exposures, as well as the types of claims brought against local public entities.

Balance sheet strength reflects the strongest level of risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR), high quality, well-diversified investment portfolio with strong liquidity, below average underwriting leverage metrics and consistently favorable loss reserve development trends.

Operating performance has been adequate over the past several years, derived from a steady flow of net investment income and offset partially by negative underwriting results due to the company’s significant expense disadvantage. This position is driven by above average loss adjustment expenses, commissions and fixed/overhead costs. The ERM program is aligned with the business model to provide long-term access to high quality insurance and risk-related services to a select group of local public entities.

The stable outlooks reflect the expectation of continued very strong balance sheet strength and a return to profitable operating performance despite volatility in underwriting income.

Source: A.M. Best

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