OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a+” of Baltimore Equitable Society (Baltimore Equitable) (Baltimore, MD). The outlook of the FSR remains stable.
While Baltimore Equitable maintains adequate risk-adjusted capitalization, the revised Long-Term ICR outlook is related to the company’s trend of volatile operating performance and limited business profile that includes a single personal property product offering. Baltimore has in-force perpetual homeowners’ policies for risks primarily located in the Baltimore metropolitan market and has recently begun developing an underwriting territory in the metropolitan Philadelphia, PA area. Macroeconomic factors and the changing business environment continue to impact the company’s operating performance and its market position as its property coverages are perpetual policy forms that target a specific property market. Customer referrals, direct mailings and targeted radio advertising recently have been utilized to attract new business. In recent years, policy cancellations have outpaced new business, resulting in a steadily declining policy count. However, average new perpetual policy deposits have increased.
As a perpetual homeowner writer, policy deposits are fully refundable and as a result, are not recognized as premium revenue. Therefore, the evaluation of Baltimore Equitable’s ability to generate capital appreciation is focused on total investment returns. In recent years, investment income and capital gains have fluctuated due to the broad investment market volatility and is reflected in the company’s total return on invested assets and declining equity yields. Continued strain is expected on the investment portfolio as a result of the low interest rate environment and volatile equity market.
Negative rating action could occur if there is a sudden, unexpected and material decline in risk-adjusted capitalization or if there is a sustained deterioration in total returns.
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