AM Best has revised the outlook to stable from positive for the Long-Term Issuer Credit Ratings (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICRs of “bbb” of Wisconsin Reinsurance Corp. (WRC) and 1st Auto & Casualty Insurance Co. (1st Auto). The Madison, Wisconsin-based companies are collectively referred to as Wisconsin Reinsurance Group (WRG).
The outlook of the FSR is stable.
The Credit Ratings (ratings) reflect WRG’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The revised Long-Term ICR outlook reflects surplus declines in recent years driven by the negative impact of weather-related events and continued below-average performance in the automobile insurance book of business.
WRG’s strong balance sheet strength is supported by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and high quality investment portfolio.
These strengths are partially offset by elevated underwriting leverage metrics relative to peers, primarily driven by above-average premium leverage and higher reinsurance dependence, as measured by ceded leverage.
Additional offsetting factors include limited financial flexibility, with surplus growth tempered by stockholder dividend payments and changes in nonadmitted assets.
WRG’s adequate operating performance reflects pretax operating income reported in four of the last five years, with 2019 being the outlier as severe weather-related events swept across central and northern Wisconsin and influenced results.
Additionally, recent performance has been pressured by declining profitability in reinsured business written by client companies, as well as continued weak performance in the direct auto insurance book.
The limited business profile reflects the group’s geographic concentration in the Midwest and susceptibility to weather-related losses operating as a reinsurance provider to mutual insurance companies.
AM Best considers the ERM framework and risk management capabilities appropriate for the risk profile of the organization. The group’s exposure to severe weather events is partially mitigated through a comprehensive reinsurance program that includes a diversified panel of high quality reinsurers.
WRC formed in 1931, is owned by the clients it reinsures. Initially offering reinsurance coverage in Wisconsin, the group has since expanded into Arkansas, Iowa, Missouri, South Dakota and Illinois.
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