OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the financial strength rating to B+ (Good) from B++ (Good) and the issuer credit rating to “bbb-” from “bbb” of ARI Mutual Insurance Company (ARI) (Newtown, PA). The outlook for both ratings remains negative.
The rating action reflects ARI’s weakened underwriting results in 2014, primarily driven by an increased level of adverse loss reserve development reported on prior accident years, which has negatively impacted risk-adjusted capitalization. As a result of continued operating losses, the company was forced to reduce its deferred tax asset by $3.3 million, further weakening surplus. The combined impact from operating and other losses was to reduce surplus by $9.2 million, or 32%, in 2014. In order to provide immediate surplus relief, management has secured additional quota share reinsurance, effective March 1, 2015, as well as initiated steps to increase its existing quota share reinsurance with its current reinsurance partner, effective April 1, 2015. Together, these actions will improve ARI’s risk-adjusted capital to more supportive levels.
The negative outlook reflects A.M. Best’s concern that ARI’s underwriting results may be slow to improve given the level of adverse development recorded in recent years, including in 2014. As a result, weak earnings may make it more difficult for the company to significantly improve its level of risk-adjusted capitalization in the near term.
Factors that may lead to negative rating actions include further deterioration in underwriting and operating performance, continued adverse loss reserve development and/or erosion of surplus that could consequently cause a decline in the company’s risk-adjusted capitalization. Factors that could lead to positive rating actions include improvement in risk-adjusted capitalization and sustained profitable operations supported by an appropriate level of risk-adjusted capital.
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.
Key insurance criteria reports utilized:
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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