AM Best has downgraded the ratings for Wolverine Mutual Insurance, with its Financial Strength Rating revised to B- (Fair) from B++ (Good), and the Long-Term Issuer Credit Rating changed to "bb-" (Fair) from "bbb" (Good). AM Best also revised the outlook of these credit ratings to negative.
The downgrade was attributed to a notable deterioration in the company’s capitalization throughout the first half of 2023. This is evident, AM Best explained, in a nearly 20% decrease in policyholder surplus, primarily due to escalated weather-related losses and persistent inflationary pressures.
Notably, this decline in policyholder surplus also adds to the substantial double-digit percentage drops observed in the preceding two year-end reporting periods. Consequently, Wolverine’s risk-adjusted capitalization has significantly worsened, accompanied by a rise in the company’s underwriting leverage metrics.
Moreover, the company's ERM assessment has been reevaluated to be marginal, reflecting ongoing challenges in Wolverine's management of its concentrated risk profile. Recent hikes in the company’s reinsurance retention and level of co-participation have amplified the impact of weather-related losses on its operating results.
Though the company has taken corrective measures such as rate increases, expense management initiatives, and tightened underwriting guidelines, the ultimate effect of these actions remains uncertain. Therefore, AM Best said that the negative outlooks underscore the potential continuation of adverse results, where further reductions in capitalization could lead to additional negative rating actions.
Recently, State Farm Mutual and several of its subsidiaries have also received downgraded financial outlooks from AM Best, with the credit agency citing adverse underwriting experiences in the private passenger auto insurance sector.
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