OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the issuer credit rating (ICR) to “bbb” from “bbb+” and affirmed the financial strength rating (FSR) of B++ (Good) of FHM Insurance Company (FHM) (Jacksonville, FL). The outlook for the FSR has been revised to negative from stable, while the outlook for the ICR remains negative.
The rating actions reflect the significant deterioration in FHM’s nine-month 2014 underwriting and overall operating performance, which followed the company’s partial recovery in 2013 from substantial deterioration in operating performance in years 2010 through 2012. The company’s net losses in years 2011 through 2013 and the nine-month period of 2014, have resulted in statutory surplus declines and contributed to weakened risk adjusted capitalization, albeit remaining adequate for its ratings. A.M. Best expects the company’s combined and operating ratios will be significantly higher in 2014 than previously projected largely as a result of increased claims severity experience. Higher underwriting losses are anticipated primarily in Florida, as well as in two of the company’s larger southeastern expansion states.
Senior management, led by a new chief executive officer, has implemented substantive re-underwriting and claims management initiatives to improve profitability that include raising premium rates, focusing premium concentration in the company’s most profitable states, non-renewing unprofitable business, reducing higher hazard policies, enhancing pricing models, lowering the number of open claims and hiring new underwriting representatives and loss control consultants in several expansion states. However, necessary adjustments to achieve acceptable profitability will likely take time in highly regulated and competitive workers’ compensation markets, and the company’s expansion in non-Florida states in recent years has posed additional operating risks.
While corrective actions have been taken, FHM's ratings could be negatively impacted should continued competitive conditions or a lack of underwriting discipline result in underwriting and overall profitability measures falling short of A.M. Best’s expectations, or should there be a continued material decline in the company's 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.
Key insurance criteria reports utilized:
- Equity Credit for Hybrid Securities
- Risk Management and the Rating Process for Insurance Companies
- The Treatment of Terrorism Risk in the Rating Evaluation
- 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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