A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of West Virginia Mutual Insurance Company (WVMIC) (Charleston, W.Va.).
The revision of the outlook to negative reflects the deterioration in the company’s underwriting and operating results since 2013 and the challenges that the company faces to improve results in the near term given ongoing competitive market conditions, changes in market dynamics in health care delivery and continued low interest rates.
WVMIC’s operating and underwriting performance suffered in recent years as a result of a prolonged soft market in the medical professional liability (MPL) segment, increased competition and an uptick in severity, mainly attributed to death claims. In addition, reserve redundancies on prior accident years have diminished and investment income growth remains under pressure due to prolonged low interest rates. The decline in earnings is further accentuated by the company’s single state, mono-line concentration of risk in the MPL sector as they relate to price competition, loss cost trends and regulatory challenges.
Positive rating factors include WVMIC’s excellent risk-adjusted capitalization, historically favorable operating performance, strong market position in West Virginia and a knowledgeable management team. Further supporting the positive rating factors is the state’s favorable tort reform environment (including caps on non-economic damages) and WVMIC’s strong ties to the health care community.
Although risk-adjusted capitalization is supportive of the ratings, negative rating action could result if the company’s underwriting and operating performance do not show significant sustained improvement or if there is a material weakening of its risk-adjusted capital position. Positive rating action would occur if the company shows sustained underwriting and overall operating performance improvement.