OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” from “a-” of Wisconsin Municipal Mutual Insurance Company (WMMIC) (Madison, WI). The outlook of the FSR has been revised to stable from negative, while the Long-Term ICR remains negative.
The ratings reflect WMMIC’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
The rating downgrades reflect WMMIC’s trend of operating losses in four of the past five years that resulted in declines in policyholders’ surplus. The operating losses were due to unfavorable underwriting results driven by adverse loss reserve development; this was driven by several large civil rights liability claims settled in the federal court system that were not subject to Wisconsin’s tort cap law. Further exacerbating the decline in policyholders’ surplus were dividends paid to members/policyholders in four of the past five years. Although WMMIC had successfully attracted and retained member/policyholders through profit-sharing and returns of capital, this resulted in negative five-year average return measures and significantly elevated combined and operating ratios.
Over the latest five-year period, policyholder dividends have averaged approximately 47 points of the company’s combined ratio, which averaged 179.6%. Further, WMMIC has a limited business profile due to its pool of potential member/policyholders, product offerings and single-state concentration.
The negative Long-Term ICR outlook reflects the decline in policyholder surplus over the last five years, adverse operating results and the overall effectiveness of WMMIC’s enterprise risk management given recent results.
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