OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and the issuer credit rating (ICR) to “bbb+” from “a-” of PEMCO Mutual Insurance Company (PEMCO) (Seattle, WA). The outlook for both ratings has been revised to stable from negative.
The rating actions reflect the company’s below-average trend of operating performance over several years that generated negative pre-tax operating returns that lag the industry average. Underwriting losses have been driven by weather-related losses that affected the property book of business, as well as severity in the personal automobile lines of business. Management reported that automobile physical damage and property claims activity increased in 2014, resulting in unfavorable one-year development. The company writes more than 90% of its business in Washington, which exposes the company to weather-related losses and illustrates the need for additional comprehensive exposure risk-management procedures. The concentration was evident in 2015, when the company’s results were impacted by abnormally severe wildfire losses and a windstorm in November, which from a pure loss perspective was the second worst month in the company’s 67-year history and contributed to an estimated underwriting loss for the year.
Partially offsetting these negative rating factors is the company’s adequate risk-adjusted capitalization, which has been bolstered recently by a number of non-recurring real estate transactions that offset operating losses. In addition, significant systems enhancements, operational efficiencies and expense-management actions are ongoing to improve performance. Management intends to further grow its business over several years in Oregon in an effort to diversify geographically. PEMCO has a long-term established market presence and strong agency relationships in its operating territories.
Negative rating action may occur if there is a material decline in its risk-adjusted capitalization, continued reduction in profitability or substantial adverse reserve development.
Positive rating action could occur following several years of improvement in profitability and operating performance, provided that is the major factor driving an increase in capitalization.
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.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2016 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.