OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of B (Fair) and issuer credit rating of “bb” of Discovery Insurance Company (DIC) (Kinston, NC).
DIC’s revised outlook reflects the significant improvement in its operating performance over the past two years as underwriting losses were offset by significant increases in fee-based income during this period. As a result, DIC has been able to maintain its risk-adjusted capitalization at a level that is supportive of its current rating level. Furthermore, the reserves of its affiliated workers’ compensation business, which was placed into run off effective January 1, 2012, have continued to develop favorably. DIC’s management had discontinued writing this business following significant losses in prior years.
DIC’s underwriting performance continues to be negative, and it is subject to regulatory, legislative and judicial pressures due to its single state concentration in North Carolina. Somewhat offsetting these negative rating factors are DIC’s improved operating results from significant fee-based income, adequate risk-adjusted capitalization, long-standing agency relationships and local market knowledge in North Carolina.
Future negative rating actions may occur if there is a recurrence of adverse loss and loss adjustment reserve development on the workers’ compensation run-off reserves, as well as greater than projected losses from weather-related events that result in underwriting and operating losses that could further erode surplus. However, positive rating actions may occur if operating profitability is sustained with additions to policyholders’ surplus and maintenance of adequate risk-adjusted capitalization.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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