OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the financial strength rating (FSR) to B+ (Good) from B++ (Good) and the issuer credit rating (ICR) to “bbb-” from “bbb” of Pacific Pioneer Insurance Company (Pacific Pioneer) (Cypress, CA). The outlook for both ratings is stable.
The downgrades are based on the deterioration in Pacific Pioneer’s underwriting results, operating earnings and policyholders’ surplus in recent years. This deterioration was driven by Arizona hailstorm losses and major fire losses on its assumed commercial multiple peril business. Pacific Pioneer also has reported adverse loss reserve development from these losses in subsequent calendar years.
The ratings and outlooks reflect Pacific Pioneer's solid risk-adjusted capitalization and local market expertise. Partially offsetting these positive factors is the company's limited business profile, as it has assumed a majority of its business from a third-party carrier.
The positive rating factors include the company's moderate underwriting leverage and local market knowledge, derived from its long-standing relationships within California's sizeable Asian communities. Management has implemented several initiatives over recent years, some of which have included the implementation of rate adjustments, the reorganization of its claims operation and the installation of a new system for better loss tracking and pricing. Pacific Pioneer also has benefited from its conservative investment portfolio that has generated a steady stream of income.
The company's negative rating factors include its limited business profile, as it has been dependent on a third-party carrier to write a considerable portion of its business on a direct basis, which it assumes from this carrier. Consequently, unfavorable combined ratios have been reported in three of the last four years. Additionally, as a predominantly California commercial and personal lines writer, Pacific Pioneer is exposed to market competition, regulatory changes and judicial decisions.
Negative rating actions could occur if there is a continuation of operating losses leading to declines in surplus and risk-adjusted capitalization. Any favorable rating actions are contingent upon the company's ability to report consistent and sustained operating profitability, while maintaining solid 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.
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