Ratings: Southern General/GreenStar, Fairfield, Community Mutual, Wisconsin County

January 18, 2013

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘B’ (Fair) from ‘B++’ (Good) and the issuer credit ratings (ICR) to “bb+” from “bbb” of Southern General Insurance Company (SGIC) and GreenStar Insurance Company, an affiliate of SGIC, both domiciled in Marietta, Georgia. The outlook for the FSR is stable, while the outlook for the ICRs has been revised to negative from stable. Best said the “rating actions reflect SGIC’s continued operating losses in 2011 and the first nine months of 2012, which resulted in combined and operating ratios that compare unfavorably with results for the private passenger non-standard composite. Additionally, SGIC policyholders’ surplus and risk-adjusted capitalization declined as a result of poor operating performance and a significant adjustment to premium receivables from its managing general agent, The Insurance House, Inc.” Best explained that the “company’s negative operating losses resulted from a trend of underwriting losses driven by inadequate rates, increased claim severity that led to adverse prior year loss reserve development, increased competitive market conditions and an elevated expense structure.” Best said the outlook for the FSR, despite the potential for execution risk, is “based upon the current projections and initiatives being undertaken by SGIC to reduce its expenses and return it to profitability. In response to declining operating trends, SGIC has taken aggressive actions to reduce expenses, optimize territorial rates, withdraw from South Carolina and launch a new point-of–sale technology program.” As partially offsetting the negative factors, Best cited “SGIC’s adequate risk-adjusted capitalization and long-standing agency relationships and local market presence. Although SGIC’s FSR outlook is stable, there may be potential future negative rating actions, if it fails to execute on its recovery plans and continues to report operating losses, which further erodes policyholders’ surplus and risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR).” Best said its rating actions for GreenStar “recognize its changing profile, the uncertainty that exists to successfully market its private passenger non-standard automobile coverage to metropolitan areas and its erratic operating performance in recent years.” In addition Best said that over the near term, “there may be negative rating actions if the company does not substantially meet its projections, which include a greater decline in its operating losses, policyholders’ surplus and risk-adjusted capitalization, as determined by BCAR.”

A.M. Best Co. has withdrawn the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Fairfield Insurance Company following the merger into its affiliate company, Genesis Insurance Company (GIC) on December 31, 2012. The ratings of GIC are not affected by this transaction. “The merger is part of immediate parent company General Reinsurance Corporation’s (Gen Re) strategy of business simplification and to achieve increased efficiencies. Gen Re’s ultimate parent company is Berkshire Hathaway Inc.,” Best explained.

A.M. Best Co. has downgraded the financial strength rating to “C (Weak) from ‘C+’ (Marginal) and the issuer credit rating to “ccc” from “b-” of New York-based Community Mutual Insurance Company, and has withdrawn the ratings in response to management’s request to be removed from Best’s interactive rating process. Best explained that the “downgrades follow Community Mutual’s continued unprofitable underwriting performance and diminished levels of surplus. In particular, in 2011, statutory surplus declined by 26.6 percent, and in 2012, it declined by an additional 18 percent.” Best also pointed out that “Community Mutual has experienced significant losses attributable to major fires and weather-related events in recent years. The company’s unfavorable operating performance is evidenced by its negative five-year average pre-tax returns on revenue and surplus. Although the company’s pure loss ratio compared favorably to the personal property composite average on a five-year average basis, elevated loss adjustment expenses and other underwriting expenses contributed to net underwriting losses in each of the past five years. Additionally, Community Mutual’s single-state concentration of risk exposes it to weather-related events as well as to market, regulatory and judicial issues.”

A.M. Best Co. has upgraded the issuer credit ratings (ICR) to “bbb+” from “bbb” and affirmed the financial strength rating of ‘B++’ (Good) of Wisconsin County Mutual Insurance Corporation and its fully reinsured subsidiary, Community Insurance Corporation (CIC), both of which are members of Wisconsin County Mutual Group (WCMG) and are all domiciled in Madison, Wisconsin. The outlook for all of the ratings remains stable. Best said the “upgrade of the ICRs reflects WCMG’s strong risk-adjusted capitalization, expertise within the Wisconsin municipal risk management market and improved operating and underwriting performance. The ratings also reflect WCMG’s improved performance as a result of its commitment to loss control and risk management services. In addition, WCMG continues to maintain a well-established market presence among Wisconsin counties and municipalities.” As partial offsetting factors Best cited “the group’s elevated expense ratio, historical trends of variable underwriting results and modest business profile.” Best said: “Prospectively, future positive rating actions may result if WCMG’s operating results continue to demonstrate profitable trends while maintaining solid risk-adjusted capitalization, particularly as CIC reenters the workers’ compensation market in its niche market. Conversely, if operating performance declines to unprofitable levels as demonstrated in historical periods, negative rating pressure may occur.”

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