A.M. Best has downgraded the financial strength rating to B- (Fair) from B (Fair) and the issuer credit rating to “bb-” from “bb” of Southern General Insurance Co. (SGIC) of Marietta, Ga. The outlook for both ratings is negative.
The downgrade reflects SGIC’s declining policyholder surplus and risk-adjusted capitalization as a result of continuing pre-tax operating losses over the latest five-year period.
This negative operating performance was driven by the company’s persistent underwriting losses resulting from its elevated expense structure, property catastrophe losses in 2009 and adverse loss reserve development. Additional negative rating factors include elevated underwriting leverage and low liquidity ratios that unfavorably compare with the private passenger non-standard auto composite.
The company’s profile also includes limited product offerings, geographic concentration and a competitive local marketplace that subject SGIC’s earnings to potential adverse weather-related events and judicial, legislative and regulatory actions.
While the negative outlook reflects the uncertainty that management’s initiatives will successfully return the company to operating profitability over the intermediate term, SGIC’s operating results have significantly improved in 2014, though still negative, compared to the prior years of operating profitability. The substantial improvement to operating results in 2014 are based on product and pricing improvements, technology enhancements and aggressive expense management actions over the course of the prior three years.
There may be potential future negative rating actions if SGIC fails to execute its plans and continues to report operating losses, further eroding policyholders’ surplus and risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio.
Topics AM Best
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