OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the financial strength rating (FSR) to A- (Excellent) from A (Excellent) and the issuer credit rating (ICR) to “a-” from “a” of Wawanesa General Insurance Company (WGIC) (San Diego, CA). The outlooks have been revised to negative from stable.
Concurrently, A.M. Best has affirmed the FSR of A+ (Superior) and the ICR of “aa-” of WGIC’s parent, The Wawanesa Mutual Insurance Company (Wawanesa Mutual) (Winnipeg, Manitoba, Canada). The outlook for each of these ratings remains negative. A.M. Best also has affirmed the FSR of A (Excellent) and the ICR of “a” of Wawanesa Mutual’s other subsidiary, Wawanesa Life Insurance Company (WLIC) (Winnipeg, Manitoba, Canada). The outlook for each of these ratings remains stable.
The ratings downgrade and revised outlooks reflect WGIC’s weakened operating performance in 2015, which was partially responsible for the company’s more than $44 million, or 18%, loss in surplus at year-end 2015. The company’s below-industry average underwriting and operating performance further worsened in 2015 due to an increase in frequency and severity of losses, as well as adverse development.
Offsetting these negative rating factors are WGIC’s adequate risk-adjusted capitalization, below-average expense structure, long-standing presence in the California private passenger auto market, and the implicit and explicit financial support of its highly rated parent, Wawanesa Mutual.
Further negative rating action could occur in the near to midterm if WGIC’s relationship to its parent or its support change in a manner that affects the operational stance of the company; if it incurs further material losses in its capitalization; has a continued severe reduction in the profitability of its core book of business; or incurs more adverse development within its reserves relative to its peers, as well as the industry’s averages.
The ratings of Wawanesa Mutual reflect the company’s long-standing, very strong risk-adjusted capital position, which reflects its balance sheet strength, continued profitable operating performance, market leadership position and comprehensive reinsurance program protecting surplus against catastrophic underwriting losses. These positive rating factors are partially offset by intense competitive pricing pressure in certain market segments and an increasing overall trend of more frequent and severe storm losses across Canada in recent years. Additionally, Wawanesa’s underwriting performance, excluding the addition of fee income, has not broken even or better since 2006, and continues to fluctuate more than its composite and has infused greater volatility into Wawanesa’s operating returns.
A.M. Best will lower the ratings of Wawanesa Mutual in the near to midterm if the company is unable to correct its underwriting profitability issues; incurs material losses in its capitalization; is unable to contain the group’s exposure to catastrophic events within its underwriting footprint or has substantial adverse reserve development relative to their peers, as well as the industry’s averages. However, positive rating action could occur with sustained and consistent profitable underwriting results, complementing the company’s already sustained operating profitability.
The ratings of WLIC reflect its strategic importance and contributions to its parent, Wawanesa Mutual, by offering life, annuity and accident and sickness products to its property/casualty client base, its strong risk-adjusted capitalization, overall good credit quality of invested assets and generally profitable earnings trends. In addition, WLIC shares services with its parent, such as management, operating platforms and distribution. Offsetting rating factors include relatively flat premium growth, operating losses in its non-participating lines of business, challenges of operating profitably in the current low interest environment and an increasingly competitive marketplace dominated by a few large enterprises.
Positive rating action may occur if A.M. Best increases its view of the company’s strategic importance to Wawanesa Mutual or if A.M. Best takes a positive rating action on Wawanesa Mutual. A negative rating action may occur if there is a downgrade in Wawanesa Mutual’s rating by A.M. Best, or a decrease in A.M. Best’s view of strategic importance relative to its parent.
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 see A.M. Best’s Recent Rating Activity web page.
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